weekend update

REVIEW

The market started the week at SPX 2192. After a gap up opening on Monday the SPX rallied to 2252 by Thursday. Then the largest pullback in a week took the SPX down to 2243 late Thursday, before the market rallied and closed at a SPX 2260 all time high on Friday. For the week the SPX/DOW gained 3.10%, and the NDX/NAZ gained 3.35%. Economic reports for the week were light and leaned positive. On the downtick: consumer credit, wholesale inventories, the Q4 GDP estimate, plus the trade deficit increased. On the uptick: ISM services, factory orders, consumer sentiment, the WLEI and weekly jobless claims improved. Next week’s reports will be highlighted by the FOMC, retail sales and industrial production. Best to your week!

THE FOURTH TURNING

There has been some mention of the 4th turning in the media lately and rightfully so. Not because we are still in the midst of the turning, as reported, but that it is coming to an end. We have written about the Saeculum, which is a four generational master cycle that consists of four turnings or secular cycles, (a word derived from the Saeculum), in past posts: https://caldaro.wordpress.com/2010/11/04/politics-and-secular-bullbear-markets/ and https://caldaro.wordpress.com/2010/02/14/grand-super-cycle-revisited%e2%80%8f/. I had studied this theory over twenty years ago, taking it back 6,000 years in history, and found it to be quite compelling. Since then it was integrated into our OEW analysis.

The Saeculum, which was discovered by the Sybil about 3,000 years ago, is a repetitive four generation cycle that unfolds because each generation raises their children in a predictable cyclical manner. Each Saeculum cycle consists of four turnings, secular cycles, that each last about 15-20 years, creating the larger 70-80 year Saeculum cycle. The four secular cycles that create one Saeculum cycle are called: growth, protest, unraveling and crisis. Each of the secular cycles have their own economic/political characteristics. You can get more information about these secular cycles using the links above.

In economic/political terms a full Saeculum cycle unfolds like this. After a Crisis ends there is a generation of secular Growth: strong economic growth, low inflation, low commodity prices, low interests rates, and a strong secular bull market in equities. Protest: economic growth stagnates, inflation rises and peaks, a commodity bull market, interest rates rise and peak, and equities crash and then enter a trading range. Unraveling: economic growth picks up again, inflation declines, commodities enter a bear market, interest rates decline, and there is a strong bull market in equities. Crisis: economic growth crashes then recovers, low inflation even deflation, a commodity bull market, interest rates decline and bottom, and equities crash and then enter a trading range.

To summarize in investment terms. The two best secular cycles to own equities are Growth and the Unraveling. The two best secular cycles to own commodities are the Protest and Crisis cycles. Interest rates rise during the Growth and Protest cycles, and decline during the Unraveling and Crisis cycles. Therefore it is important to know what secular cycle is underway and when it is ending. Since there is some confusion in the media, and even by one of the book’s authors, we will try to clear this up. We have had the luxury of observing a complete Saeculum cycle, as it relates to the stock market and other asset classes over the past century. There is a chart in one of the links above.

The Unraveling cycle (1908-1929), which created the FED, government regulatory intervention, taxation, and consumer credit, ended with a speculative blow off top in equities in 1929. The 1929 stock market crash was the trigger for the Crisis cycle (1929-1949) that followed, and it was confirmed by the election of Roosevelt (1932). The Growth cycle (1949-1966) was triggered by the Marshal Plan (1948), the rebuilding of Europe after WW II, and confirmed by the election of Eisenhower (1952). The Protest cycle (1966-1982) that followed was triggered by the deployment of US combat troops into Viet Nam (1965) and confirmed by the election of Nixon (1968). The Unraveling cycle (1982-2000) was triggered by the FED raising rates to historical levels (1980) to end an inflationary spiral, confirmed by the election of Reagan (1980), and ended with a speculative blow off top in equities. The Crisis cycle (2000-2016) was triggered by the election of GW Bush (2000) and confirmed by the tragic 911. Pearl Harbor, during the previous Crisis cycle, lost about 3,000 Americans, nearly the same number as 911. The Growth cycle, we believe just started, was triggered by the nationalistic/populist movement across the world (2016), it will spread, and confirmed by the election of Trump (2016). Sounds far fetched? Let’s take a different view.

Nearing the end of the last Crisis cycle (1929-1949) the US, and much of the western world for that matter, embraced Keynesian economics. The economic system that suggests government should intervene when the economy weakens and aim for full employment which will fuel the economy. This worked quite well for the Growth cycle (1949-1966). However, after a period strong economic growth, an over-confident political class, a wealthy middle class, and a tight labor market, excesses appeared and political mistakes were made. The Protest cycle (1966-1982) was then underway. As the economy spiraled out of control a new economic theory was forming: Laffer economics, better known as supply-side trickle down economics. The economic system that suggests corporate growth should fuel the economy, and their gains will trickle down to the masses. The Unraveling cycle (1982-2000) began with the election of Reagan (1980) and the implementation of this economic system. This worked well until an over-confident political class took corporate growth to an extreme, and many, many mistakes were made. The Crisis cycle (2000-2016) was then underway. A dotcom bubble imploded, 9/11, a real estate bubble imploded, the near extinction of the middle class, the worse bear market in equities since 1929-1932, the growth in the one-percent class, tax inversions, and more. Just like during the Protest cycle when Keynesian economics created excesses and failed, Laffer economics eventually created excess and failed as well. As this was unfolding a new economic theory was forming. Let’s call it renewed Keynesian economics for now. Instead of using the economy to build international corporations in supply side economics, let’s use corporations to rebuild the middle class and they will grow the economy. The cycle of nationalism (growth/protest) to internationalism (unraveling/crisis) is returning back to nationalism (growth/protest). And the transition is underway now!

LONG TERM: uptrend

The Primary III bull market that began in February 2016 continues to make new all time highs in most of the major indices. We do not believe this advance from February is a fifth wave, as it did not quantify as a fifth wave using OEW. In conventional Elliott Wave technicians can place labels anywhere they have what appears to be the right look. In OEW we can only place labels at the beginning and end of mathematically quantified waves. This has been the case since the early 1980’s, and it has worked quite well.

spxweekly

From the February Primary II bear market low the market is now in its third impulsive uptrend. As noted on the above/below charts the first uptrend was labeled Intermediate wave i, the second uptrend Minor wave 1 of Int. wave iii, and the current third uptrend Minor wave 3 of Int. iii. The strength in the DOW, and its acceleration to the upside is typical of third wave activity.

dowdaily

MEDIUM TERM: uptrend

From the Minor wave 2 downtrend low in early November at SPX 2084 we have labeled a Minute wave i to SPX 2214, a Minute wave ii at SPX 2187, with a Minute wave iii currently underway. Since this uptrend is a third wave, and not a first, we are expecting it to advance more than Minor 1 (202 pts.) and similar to Int. i (301 pts.). This would give this uptrend a potential target in the SPX 2380’s some time in January. Thus far the uptrend is five weeks old and has travelled 176 points. So it appears right on track with possibly seven weeks to go.

spxdaily

Once the uptrend concludes we would expect a sharp correction of about 100+ SPX points for Minor wave 4, then another uptrend to new highs for Minor 5. But all this activity would only complete Intermediate wave iii of Major wave 1. Primary waves consist of five Major waves. Therefore, thinking about a bear market anytime soon would be premature. Medium term support is at the 2212 and 2177 pivots, with resistance at the 2270 and 2286 pivots.

SHORT TERM

Minute wave i off the Minor 2 downtrend low at SPX 2084 was quite somewhat difficult to count, but topped at the OEW 2212 pivot. The wave kept subdividing into smaller and smaller waves, an impulsive 27 in all. Minute wave ii was quite simple, bottomed at the OEW 2185 pivot, and then Minute wave iii took off to the upside. Once the OEW 2212 pivot range was cleared on Wednesday the rally accelerated.

spxhourly

The next upside target is the OEW 2270 pivot, and then the OEW 2286 pivot. The market closed on Friday within 3 points of the OEW 2270 pivot range. These two pivots should offer some resistance, but it is unlikely that Minute iii will end there. The target range for Minute iii is between SPX 2288 and 2368. Thus far this bull market’s characteristics have been quite consistent. Short term support is at the 2212 and 2177 pivots with resistance at the 2270 and 2286 pivots. Short term momentum ended the week with a significant negative divergence, but no pullback yet to even consider it. Best to your trading!

FOREIGN MARKETS

Asian markets were mostly higher and gained 1.5% on the week.

European markets were all higher and soared 5.5% on the week.

The DJ World index gained 2.9% on the week.

COMMODITIES

Bonds continue to downtrend and lost 0.4% on the week.

Crude is in an uptrend but lost 0.4% on the week.

Gold remains in a downtrend and lost 1.4% on the week.

The USD is still in an uptrend and gained 0.6% on the week.

NEXT WEEK

Monday: budget deficit at 2pm. Tuesday: export/import prices. Wednesday: retail sales, the PPI, industrial production, business inventories and the FOMC meeting concludes. Thursday: the CPI, weekly jobless claims, the Philly/NY FED, and the NAHB index. Friday: housing starts and building permits.

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

About tony caldaro

Investor
This entry was posted in special report, weekend update and tagged , , , . Bookmark the permalink.

208 Responses to weekend update

  1. CB says:

    Very interesting work. Thanks Tony. It makes you think how deep & long-lasting the consequences of any major crisis are (financial bailouts that “fix” things quickly are only the 1st and the easiest step). Bill Gross hinted at that recently saying that because of our structural issues, we should realistically expect 2-3 %growth at best. We’ll see soon enough what the market thinks about that.

    Also, many of your readers might already be familiar with the K-wave count (50 yr cycles), so just for comparison purposes, let me briefly mention it ; in terms of the Kondratieff cycles, the 2 most severe K-Winters in recent history lasted from 1929 to 1949, and from 2000 to 2003. According the K-wave count, the next “Winter” is yet to start in earnest in 2-3 years. So, let’s see how things play out. Hopefully we don’t see more social unrest, which would be the worst possible scenario..

  2. torehund says:

    utopia-dystopia-by-dylan-glynn

    …I thought dystopia was just averted 🙂

  3. mjtplayer says:

    tony caldaro says:
    December 12, 2016 at 9:46 am
    China/commodities helped create the 2015-2016 bear market.
    The others were thought by many would continue a bear market. Thought.

    We had a bear market in 2015? I must have missed that one…

    Officially, a correction is a drop of 10%+, a bear market is 20%+

    Fact is, the DOW hasn’t had a 20%+ drop (official bear market) since 2009; largest pullback was 19.2% in 2011. If we continue rallying into April next year, it will tie the 2nd longest bull market in history measured by duration, the Aug 1921 – Sept 1929 bull (8yrs & 1 month). Only bull market that was longer was Oct 1990 – Jan 2000 (9yrs & 3 months)

    • vivelaamo says:

      Bear or bull. Just words based on the past. Things have changed. Bear markets do not exist anymore. Stocks do not reflect reality. They only allow the media to paint a rosy picture. Stock will keep going up.

    • johnnymagicmoney says:

      Tony said that without question no if an or buts (even if it hit new highs) that we were in a bear market B wave from 1810. Then he skipped over the possibility of us being in Primary 5 of the bull and went straight to this being a new bull market. To me the most likely scenario to explain the new highs is January was primary 4 and we are in the terminal phase here. Why 15/16 was THE bear market and we are in a new bull without any real discussion about this being the last wave is puzzling to me but his model is his model and he is sticking to it. My guess is he changes that count once we crater next year (whenever that may be) but maybe he finally has it right. Who knows. No disrespect here just calling a spade a spade. I have been wrong plenty myself.

  4. nihil2016 says:

    Hilarious !!! Tony Caldaro .. the Saeculum — Fourth Turning.. Amazing the internet has turned every comedian into a “Blogger” – “Stock market historian” and forecaster. What a Joke .. P3 up .. seriously… what a Joker… whats your call Dow 50,000? Ha Ha Ha.. dont make a volte-face any time soon

  5. phil1247 says:

    http://tos.mx/AV54MN?image

    SPX MONTHLY

    2267 extension long target almost hit

    now retrace or blast thru in new extensions ?

  6. vivelaamo says:

    R2K finally pulling back. Hoping for 1350 area to go long for santa rally. Is that optimistic?

  7. cj32 says:

    Cr. to CBZ

  8. H D says:

    Tony, Interesting follow up. History does rhyme but doesn’t always look identical. Putting a chart on the turning does add an interesting perspective. I think the millennials will face a crisis. Gen X’r due for a midlife crisis. Will it be a new crisis or an extention of the current crisis is debatable. One could argue this current period of crisis could have an epic finale yet seen. Or was there already a resolution to the this crisis period? Seems the past 6 years of this cycle have been very non crisis. Have we been in growth for while now? also debatable.The economic and certainly the political landscape, globally, may provide a dead cat bounce to crisis.

  9. Thanks Tony,
    Interesting read on the saeculum cycles.
    More short-term, December opex week positive seasonality persisting for up to 3 weeks – adding fuel to the fire:
    http://quantifiableedges.com/the-most-wonderful-weeeeek-ofthe-yeeeaaaarrrrr/

  10. vivelaamo says:

    What I don’t understand is and I think a few others have mentioned. If we have been in ‘crisis’ since 2009 does that mean the gains we have seen in stocks for the pass 7 years are not as good as they should have been? Was it a bearish bull market?

    I don’t really get it.

  11. CampFreddie says:

    Tony – A very interesting read, thanks.

  12. Ajney says:

    Thanks Tony for providing this perspective. This week we have energy dates on 12, 15,16 with 12,15 being more important ones. If Gold does not reenter a megaphone soon, it is likely to revisit last year lows. Details at https://astroanalytics.wordpress.com

  13. FWIW, Neil Howe dates the start of the 4th turning as 2008. Further he dates the possible end of the Crisis era in the 2022-2025 timeframe. If so, we have a lot of wood left to chop, and from a fundamental standpoint this would seem more likely. Also, the comparison with the Reagan revolution does not compute: at the start of the Reagan administration, debt/GDP equaled 30%, we were coming out of recession, P/E on the S&P was 9x, and rates were in the double digits and on the cusp of a 30 year decline. Currently, all of those dynamics are headwinds; debt/GDP > 100% and climbing, 7+ years of “recovery”, LTM P/E for the S&P of 24x, and rates still close to zero. Consensus is that the bond bull is dead, but I believe this call may be premature. To perpetuate the illusion of debt sustainability, the Fed may yet take us into NIRP land. Last, the euphoric sentiment whipped up by Mr. Trump is likely to disappoint. Too far, too fast, and reality may prove to be very different than the prevailing Panglossian view.

  14. Jack Sparrow says:

    futures indicating correction for fed starting tomorrow after morning push up

    • fionamargaret says:

      Thanks Jack.

      • Jack Sparrow says:

        sure. your call on oil seems to right…i guess not going into teens anytime soon …some people were calling for it

        • fionamargaret says:

          numbers did not say teens…50-60..

          • fionamargaret says:

            ..suggested IBB to Bud, maybe not dead yet…TLT for a bounce…NUGT for a bounce…and you have to love TWTR and SQ, if we continue up….
            Maybe oil will have problems around 55….but no worries, just the first time within the band..

            • Bud Fox says:

              Hello Fiona…IBB is to rich for my blood. Although, just spend 2 days in south Florida,
              was nice. So, I am trying to focus, on 1 or 2 issues. Since I just got back few hours ago…Thanks a bunch.


  15. I posted similar charts from Rambus a while back.Here’s a couple updates.


    • The top chart says–it’s still bullish–only backtest a previous breakout,unless 175 on HUI is broken,for example (now at 176).The bottom chart is bearish IF OR until the H&S pattern is reversed.Biggest IF I’ve seen since 2008 and they were saying,IF Lehman gets its act together,equities can turn around…lol.

  16. cj32 says:

    Cr. to CBZ

    • cj32 says:

  17. lcd00 says:

    Weekly UVXY last 2 years. BB have a certain tightness.

  18. lcd00 says:

    Monthly NAZ last 20 years.

  19. vivelaamo says:

    All these gaps will get filled in the next few days in my opinion.

  20. Bud Fox says:

    Tony C…wish to thank you. For providing the SPX A/D, and NY A/D charts.
    As a wanta be tech. I find the 2 charts, keenly important. Thanks…Bud

  21. pooch77 says:

    Wow what just happened with futes

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