weekend update

REVIEW

The week started at SPX 2213. After a lower opening on Monday the market pulled back to SPX 2198 by Tuesday. An OPEC pact to cut crude oil production helped the market rally to a marginal new high at SPX 2214 on Wednesday. After that the market pulled back to SPX 2187 on Thursday, and ended the week at 2192. For the week the SPX/DOW were mixed, and the NDX/NAZ lost 2.7%. Economic reports for the week were nearly all positive. On the downtick: the Q4 GDP estimate and weekly jobless claims rose. On the uptick: Q3 GDP, consumer confidence, the ADP, personal income/spending, the Chicago PMI, pending home sales, construction spending, ISM manufacturing, auto sales, monthly payrolls, the WLEI, plus the unemployment rate dropped. Fourteen positive and only two negative reports. Next week’s reports will be highlighted by consumer credit, ISM services, the ECB and factory orders.

BONDS

Some pundits are concerned at the speed of the recent selloff in the bond market. Especially since the election. Historically, the reasons may be different this time, but we have seen this type of activity many times in recent years.

10yrweekly

Currently 10YR bond yields have risen from 1.34% to 2.49% (115 basis points) in just 5 months. To nearly double in such a short period of time seems like a lot. But one has to keep in mind the 1.34% yield represents a 68 year low. In recent years yields have moved up just as dramatically, and from higher levels. In 2013 10YR bond yield rose from 1.61% to 3.04% (143 basis points) in just 7 months. In 2010 10YR bond yields rose from 2.33% to 3.74% (141 basis points) in just 4 months. In 2008/2009 10YR bond yields rose from 2.04% to 4.01% (197 basis points) in just 6 months. And in 2003, 10YR bond yields rose from 3.07% to 4.67% (160 basis points) in just 2 months. The current rise is actually smaller than the previous four surges, and has thus far peaked at a lower high too.

It is also interesting to note that the years in which 10YR yields spiked, bonds sold off, were good years for equities: 2003 +26.4%, 2009 +23.8%, 2010 +13.8%, 2013 +29.6%, and 2016 +7.2% thus far with one month to go. One last point. A rise in long term yields does not usually affect an economy much until there is an inverted yield curve. This occurs when shorter term rates rise above longer term rates. When this occurs borrowing becomes more difficult, and within about one year an economy begins to contract. The last three inverted yields curves occurred in 2006, 1999 and 1989. Recessions followed in late-2007, 2000 and 1990, which were the years of stock market tops too. The current spread is about where it was in 2014 and 2010, and nowhere near an inversion.

LONG TERM: uptrend

We continue to gain more confidence in our long term count with each passing week. Since the February SPX 1810 low, uptrends have gone to new all time highs, and corrections have been prolonged and shallow, i.e. 5.6% and 5.0%. Not even the bull market in the USD, nor the bear market in 10YR bonds have rattled the market. The OPEC production cut, along with proposed infrastructure improvements, should have a stabilizing effect on commodities. Which should eventually help improve market earnings and hopefully the GDP in the quarters ahead. A secular shift appears underway from crisis to growth. Last seen during the Truman/Eisenhower era.

spxweekly

While we do not expect many to agree with us. We do see a multi-decade Cycle wave [1] underway since the 2009 SPX 667 low. During the last Super cycle (1932-2007) Cycle [1] lasted only 5 years, and Cycle waves [3] and [5] lasted 31 years and 33 years respectively. This Super cycle (2009-xxxx) appears to be starting off with an extended wave first. If this were not occurring the SPX would have already revisited 1100/1200/1300 by now. Cycle wave bull markets unfold in five primary waves. Primary waves I and II completed in May, 2015 and February, 2016 respectively. Primary III appears to be currently underway.

MEDIUM TERM: uptrend

The current uptrend, Minor wave 3, began just two trading days before the presidential election on November 8th. Despite the fact that Wall Street’s favored candidate lost, the market has rallied to all time new highs anyway. The first wave up, Minute i of five Minute waves, SPX 2084-2214 (130 points), has fit perfectly within the range (117-137 points) of the first waves up of the previous two uptrends. Suggesting this uptrend is following the characteristics of this new Primary III bull market. All bull markets have their own characteristics.

spxdaily

After the uptrend high at SPX 2214 on Wednesday the market appears to be now in a Minute wave ii pullback. When it concludes, probably in a day or so, the uptrend should resume with Minute waves iii, iv and v to much higher highs. Our questimate is that this uptrend will travel about the length of the first uptrend, which was 301 points. This projects an uptrend target within the SPX 2380’s. The SPX is currently just under 2200. Medium term support is at the 2177 and 2131 pivots, with resistance at the 2212 and 2270 pivots.

SHORT TERM

Thus far this uptrend has advanced from one pivot (2085) to another pivot (2212) to end its first wave up. And now appears it should find support for its second wave at another pivot (2177). If trading could only be that simple. We counted 27 small waves on the way up from SPX 2084-2214. Difficult to label as noted last weekend. For the Minute ii wave pullback we see support at SPX 2184 (0.236 retrace), SPX 2177 (OEW pivot) and SPX 2164 (0.382 retrace).

spxhourly

However with Sunday’s Italian referendum anything is likely to occur heading into Monday’s open. Short term support is at the 2177 and 2131 pivots, with resistance at the 2212 and 2270 pivots. Short term momentum ended the week just above oversold, with the possibility of making a positive divergence with a slightly lower (2187) print. Best to your trading!

FOREIGN MARKETS

Asian markets were mostly lower but ended mixed.

European markets were also mostly lower and lost 0.3%.

The DJ World index lost 0.5%.

COMMODITIES

Bonds continue to downtrend and lost 0.1% on the week.

Crude surged 12.2% and confirmed the uptrend.

Gold continues to downtrend and lost 0.1%.

The USD remains in an uptrend but lost 0.8%.

NEXT WEEK

Monday: ISM services at 10am. Tuesday: trade deficit and factory orders. Wednesday: consumer credit. Thursday: the ECB and weekly jobless claims. Friday: consumer sentiment and wholesale inventories. Best to your week!

CHARTS: https://stockcharts.com/public/1269446/tenpp

About tony caldaro

Investor
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252 Responses to weekend update

  1. kvilia says:

    Phil – NUGT is constantly loosing value – 3xETF. However, if gold rallies, some will make 100% in just a couple of weeks. If gold breaks out of short setup and starts an uptrend, some will make 300-400% in a couple of months. How long does it take you to make 100% on CL? 100 days with 100% trades being correct? Please do the math.

  2. phil1247 says:

    Tony

    did NY Giants pick up Zeno in mid season?

  3. kvilia says:

    Dollar is selling off – pump is over, now dump starts.

    • jhjoyner says:

      Since Thanksgiving: Every day
      SPX- Buy AM-Sell PM Easy to see on 5 min chart.
      GLD- Exactly the opposite-Sell AM- Buy PM
      How long will this last?

  4. IMHO, this pullback has been a bit too shallow…the 23.6% retracement wasn’t tested. I am beginning to look at a double ZIG-ZAG for minute ii. Admittedly, I don’t have any technical tools, other than the Fibonacci retracement to support this observation. Should the ES futures trade under 2195 (currently trading at 2204), it would increase the probability of this observation. I guess we’ll find out over the next 1 or 2 days.

  5. johnnymagicmoney says:

    Good thing they didn’t pass the reforms. The market would be down. Good thing Brexit didn’t happen cause the market would have went into a bear. Good thing the FED is going to raise rates and find themselves behind the curve because the market would be down if they were more dovish. Especially good the dollar is super strong because otherwise the market would be down big time. The best hope for the market is if we have nuclear war. man that would make this market go parabolic up to say 3000? Lets hope for warheads!!!

    • phil1247 says:

      johnny

      do you now realize that news and fundamentals do not matter ?

      • Consumer in best shape of last 30 plus years. I would call that a good reason the market is doing so well. Crash scenario here? If white can be interpreted as black. Please do your own search of actual data. Not only is the consumer holding their own they are still managing to increase savings even as they increased spending. Now I call that as good as it will get. Rate hike is in store for 2017. There will be an accelerated spike in spending all due to the current rate hike. this time around the assumption is that you better get in before it rises even further. Housing, cars, borrowing in general will rise much further than anticipated short term. I am dumbfounded to hear how bad the economy is doing. In fact if it does any better inflation will be here sooner and faster than any thinks possible. I was told for years that debt would never allow inflation to take hold. well the slow and steady approach for 7 years has gotten us to that point. Idiotic move to stimulate here, but all politicians give the consumer what they want. Idiotic move combined with an unstable president. yup that’s a prescription for decades of upside (lol).
        Wave 4 fast approaching. As adamant as I was that 2016 was an accelerated domestic growth story. Hope I am wrong because the impactions are frightening.

      • johnnymagicmoney says:

        lol dude don’t your realize by now my sarcasm is extraneous from my recognition of the strength of price?

    • fionamargaret says:

      .warheads ..and then reconstruction….so silly folks thinking reconstruction first…

  6. kvilia says:

    NUGT – target 9.6, possibly 11.88.

  7. If the euro is going to rally and $XJY has +divs here…why wouldn’t the dollar sell off?The euro rallies on bad news…what doesn’t go down(when it should)-must go up.

    • phil1247 says:

      dollar selloff may not stop gold collapse

      correlations will bankrupt you

    • phil1247 says:

      why should the euro go down ??
      the most aggressive extension short on euro failed last week as i posted

      unloaded almost all EUO last week

      when the extension shall fail…..
      you had best consider a bail ………..

  8. phil1247 says:

    http://www.economist.com/printedition/covers/2016-12-01/ap-e-eu-la-me-na-uk

    DOLLAR bulls … in case you missed it……….

    TICK TOCK clairisse……fava beans anyone ??

  9. Right on schedule. We should have a top of some sorts by the 19th. Still looking for 2240 on SPX.
    The shoe in rate hike. Consumer is opening up their pocketbooks and all data point to an accelerated trend. This will set the stage for many more rate hikes in 2017. if Trump manages to get the tax cuts without offset spending cuts we will see a minimum of 4 rate hikes in 2017.

    Anyone thinking that an accelerated economy is what is needed should just look back over the last 7 years. The boring slow approach was exactly what we needed. Too much of a good thing? You bet. Many years ago I mentioned that Wave 4 would result for accelerated domestic economy, wage and rate pressure, and debt saturation. we are HERE! Most will not believe we can have a 20 percent correction in light of a strong economy. That theory will be tested.

    If pattern holds true the 19th should see a top and the next 2 months we either slowly roll over of flat-line. A continues surge up past 2240 negates my current scenario.

  10. phil1247 says:

    bada bing

    gold 1158 target hit !

  11. manunidhi21 says:

    Namaste Tony.
    Did 2187 qualified as minute ii ?

    • tony caldaro says:

      Namaste
      minimally yes, and today’s rally above 2203 adds to that probability

      • 123 abc says:

        That’s quite bullish Tony, wave-2 didn’t even retrace 23.6% —wouldn’t that be a least the minimal pullback? The DOW hasn’t even had a pullback.

        • tony caldaro says:

          DOW is quite strong since the election, kept the SPX up
          NDX/NAZ/SOX all had good pullbacks

          • 123 abc says:

            Tony is it possible that the NDX/NAZ/SOX are in fifth wave Ending Diagonals as depicted in the below chart? Such a count would consolidate all indices including the DOW —i.e. the Trump rally is currently staging its final fifth wave in all indices before a more meaningful wave-2 pullback occurs.

  12. phil1247 says:

    /ESH7

    2204 target hit
    now pullback or up in extension longs?

  13. 123 abc says:

    Quite possibly the uptrend is still continuing, with a fifth and final wave under progress.

    Tony: Under OEW theory, can a fifth wave just contain three a-b-c legs instead of a fully fledged Ending Diagonal consisting of the usual five a-b-c-d-e legs?

  14. As defined by Yale Hirsch in 1972 in the Stock Trader’s Almanac (50th Anniversary 2017 edition page 114), the Santa Claus Rally is the last 5 trading days of the year and the first 2 of the New Year. (See Wikipedia, Investopedia and elsewhere, just Google it.) The significance of the Santa Claus Rally is really when it does not occur.

    Over this 7-day period the S&P 500 averages a rather consistent, yet a modest 1.4% average gain since 1950. But, as the songwriter in Yale declared, “If Santa Claus should fail to call; Bears may come to Broad & Wall.” In the last 22 years the SCR has been down only five times. As you can see in the table below, flat years occurred in 1994, 2005 and 2015, while nasty bears emerged in 2000 and 2008.

    .
    The S&P 500 was down -5.1% early in 2016. S&P is currently up about 7% year to date. We are currently experience some typical early December softness, but expect tax-loss selling to abate toward the middle or latter part of December and the Santa Claus Rally to emerge. While 2016 looks to be averted the full year weakness typically associated with an absent SCR, a mild NDR-Defined bear market did occur in February of this year.

    And as long as President-Elect Trump, and soon to be President Trump, doesn’t slip up Santa should arrive on schedule and we expect the market to tack on further gains well into Q1 2017. Should he stumble, the market may tumble as this rally has been built on stronger economic readings and the promise of big positive, construction changes and policy initiatives from the Trump Administration.
    I guess the -div on daily SPX has been remedied.Time to add to equities for me for the month.

  15. captbara says:

    Could be an abc from 2187. Let’s see.

  16. Can’t argue with the lousy price action.The smart move on gold here is to see if it can rally and HOLD the rally.Too many peripheral things happening,which comes down to the maxim:You can’t fight city hall (or the CBs).A GDX hold of 20.13 is a must.Triple bottoms generally don’t happen.You have to assume the worst–even with the +div on the weekly and daily.Bad news on Euro banks only provokes more gold selling BY the banks.Will lighten up later today unless dollar sells off and gold rebounds.(not counting on it).

  17. pooch77 says:

    Yup exactly what i was posting last night

  18. blackjak100 says:

    Yup, gap closed and then some just like I said

  19. vivelaamo says:

    Yet another political event to squeeze out week longs and trap new shorts. I can’t believe this happens every time!! Pb is done guys. Time for Santa rally now.

    • mcgcapital says:

      Still time yet for a drop before the Santa rally. Attention will now turn to the ECB on Thursday and the Fed next week. Could be some nervousness around what options the ECB have left and whether they taper, and the Fed raising although it’s expected. FTSE rejected 6800 and is now heading to test 6730. Expecting a break lower before a break higher, but if 6800 goes then I’ll give up calling a drop for now

    • CampFreddie says:

      All standard mkt behavior and If your Longs are squeezed out and your shorts are trapped, then you are trading backwards.

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