The week started out at SPX 2441. After a gap up opening on Monday the market rallied to SPX 2468. Then for the next two days it struggled to add to that gain, even though it opened higher both days. After hitting SPX 2475 on Wednesday the market started to pullback. Thursday’s gap down opening accelerated the decline into a low of SPX 2421 on Friday. The market then rallied intraday to SPX 2440, but then pulled back to close at SPX 2426. For the week the SPX/DOW lost 0.75%, and the NDX/NAZ lost 0.65%. Economic reports for the week were major positive. On the downtick: housing starts, building permits, and the Philly FED. On the uptick: retail sales, import prices, the NY FED, the NAHB, business inventories, industrial production, leading indicators, consumer sentiment, plus jobless claims improved. A quiet week ahead with new/existing home sales, durable goods and Jackson Hole highlighting the week.
LONG TERM: uptrend
The Major wave 1 bull market, from February 2016, continues. This week we update the weekly chart to display our preferred count. Nothing was changed between February 2016 and April 2017. We still have an Int. wave i, with an irregular zigzag Int. ii in the spring of 2016. Then Minor waves 1 and 2, of Int. iii, in the fall of 2016. And, Minor waves 3 and 4 in the spring of 2017.
At the June SPX 2454 high we are now fairly certain it was the end of Int. wave iii. Then a small 2% correction to SPX 2406/2408 in July, for Minor wave A of another irregular Intermediate wave correction. The recent August high at SPX 2491 appears to be all of Minor wave B. And, Minor wave C should now be underway to end Intermediate wave iv. Since Int. ii was an irregular zigzag, Int. iv should be an irregular flat. There is an outside chance at it being a triangle. But we will expect the most obvious first. When Int. iv ends, Int. v will take the bull market to all-time new highs.
MEDIUM TERM: downtrend probably underway
The daily chart displays the preferred count as noted above. An int. iii high at SPX 2454. Then a Minor A at SPX 2406/2408, a Minor B at SPX 2491, and a Minor C underway. Should this correction end as a flat, as expected, it should find support right around SPX 2400. It took the market three months, March-May, to finally break through that level. Then after doing so, it retested that level in June/July before heading to the all-time high. With Minor A around SPX 2400 it looks like a logical support level for Minor C in the days/weeks ahead.
Technically, with Friday’s lower lows across the board, the SPX/NDX/NAZ are all displaying positive daily divergences. Usually this is good for a decent rally. We had a similar setup during the ‘a’ wave of the Minor 4 correction in March/April. That positive divergence was small, but good for a significant bounce. The daily MACD has turned negative, which typically occurs during corrections. There could be another choppy week ahead. Medium term support is at the 2411 and 2385 pivots, with resistance at the 2428 and 2444 pivots.
The hourly chart illustrates our alternate count, since we still have not been able to totally eliminate this subdivision count. We will not spend much time on it as it is an alternate. What is more interesting is the symmetry for this irregular Int. wave iv. Minor A declined 48 points: 2454-2406. Minor B stretched a bit beyond the 1.618 relationship, with a false breakout, as it rallied 85 points: 2406-2491.
The first decline from the all-time high was 53 points: 2491-2438. Then after a 37 point counter rally: 2438-2475, the market declined 54 points into Friday’s low: 2475-2421. Notice Minor A, and the two declines of Minor C were all about the same size: 48, 53, and 54 points. These last two declines both occurred in a matter of just two days. If you review the NDX/NAZ chart you will observe several steep 2-day declines occurring nearly every month. This appears to be a characteristic of this bull market: quick shake outs.
Should the market continue Friday’s rebound I would expect it to run out of upside momentum in the 2444 – 2456 pivot area. This appears to be the fulcrum for positive/negative trader sentiment. This would also represent another 30+ point rally. Then another 50 point decline could setup the SPX for the downtrend low around 2400.
Despite the negative activity in the US this week, only three of the foreign markets we track were actually negative.
Asian markets were mostly higher for a net gain of 0.4%.
European markets were mostly higher for a gain of 1.0%.
The DJ World index lost 0.2%, and the NYSE lost 0.5%.
Bonds continue to uptrend but ended the week flat.
Crude is still in an uptrend but lost 0.3% on the week.
Gold has an uptrend to but lost 0.2%.
The USD remain in a downtrend but gained 0.4%.
Wednesday: new home sales. Thursday: weekly jobless claims and existing home sales. Friday: durable goods orders and a Jackson Hole speech from FED chair Yellen.