The week started at SPX 2443. After a higher open on Monday to SPX 2449 the market pulled back into the close. After hours N.K. fired a long-range missile over Japan which landed in the Pacific. Futures fell and the market gapped down at the open to SPX 2428 on Tuesday. When the US did not retaliate and stayed the course, the market rallied right into Friday afternoon hitting SPX 2480 before ending the week at 2477. For the week the SPX/DOW gained 1.10%, and the NDX/NAZ gained 2.75%. Economic reports for the week were plentiful and mixed. On the downtick: pending home sales, monthly payrolls, construction spending, consume sentiment, the Q3 GDP estimate, plus jobless claims and the unemployment rate rose. On the uptick: Case-Shiller, consumer confidence, the ADP, Q2 GDP @ 3%, personal income/spending, the CPI, and ISM manufacturing. Next week’s holiday shortened highlights are the FED’s beige book and ISM services. Best to you weekend!
LONG TERM: uptrend
We have spent the past two-three weeks reviewing various indices for potential market headwinds to our long-term bullish scenario. The Transports, which we will continue to track in the weekly update, displays a potential completed 5/9 wave bull market at the recent TRAN 9764 high. Since this index often tops months before the general indices, a completed bull market would suggest there are only months left in the general bull market. To confirm the bearish scenario a drop below TRAN 8744 would have to occur. There is the possibility, however, that Major wave 5 (8744-9764) was only Intermediate wave i of Major 5. An uptrend confirmation, then rally to new highs in the TRAN, would suggest the general bull market will not end soon, but continue to extend.
We had also been monitoring the NDX, which was displaying a potential completed 5/9 wave bull market as well at the recent NDX 5966 high. This index had not confirmed a new downtrend like the TRAN. But had been declining since July, 4.1%, and appeared ready to confirm a downtrend heading into this week. Then something quite astounding occurred. From Tuesday’s gap down opening the NDX rallied 225-points, 3.9%, in four days, negating the potential downtrend and extending the uptrend. An impressive reversal to new all-time highs. While further upside is now expected this index still suggests it is in the last uptrend of a potential 5/9 bull market. And is worth monitoring as well.
The clearest wave pattern of the major indices remains the DOW. The DOW remains in the seventh wave up from the 2016 low. It is still in an uptrend from April’s Minor 4 low at DOW 20.4K, and has not even completed Int. iii. When this uptrend does complete there is still, at least, Int. iv and Int. v to complete its bull market. As long as the DOW continues to look quite bullish, it is hard to imagine this bull market ending any time soon.
This brings us to the SPX. The influence of the NDX/DOW has created a somewhat odd count. It looks closest to the DOW/NAZ counts: Minor 5 of Int. iii underway. But it has a subdivision within its Minor 5. Maybe this is the cleanest count of them all? While we were expecting the SPX 2454 high in June to be the end of Int. iii, and the action since then an irregular Int. iv. The SPX looks ready to breakout to new highs, especially after that positive daily RSI divergence, negating the Int. iii count. Nevertheless, some would like to keep the Int. iii at SPX 2454, and slap an Int. iv at SPX 2408. Historically, this does not make sense. Significant 2nd and 4th wave corrections during bull markets are often similar in depth of decline. A 5.6% wave 2 and a 2.0% wave 4 makes no sense. In fact, in the last 100-years there have only been two previous 2% corrections. And they were the beginning of subdividing waves. For now we suspect the SPX is in Minute iii of Minor 5. We will continue to maintain the Int. iii/iv count on the daily chart until the SPX breaks out to new highs. It has definitely been a tricky bull market this year with the four major indices not correcting together at times.
MEDIUM TERM: inflection point remains
For the past 2-4 weeks the major indices have been declining in what appeared to be a correction. This may still occur, as noted by the daily chart labeling. This week, however, the animal spirits appeared to return after the gap down opening on Tuesday. The NDX/NAZ, R2K and TRAN all gained about 2.5%; the SEMIs gained 3.5%, and Biotech was up 9.0% for the week. Also the NDX/NAZ made new all-time highs, and market breadth made a new high.
Should the market rollover from here we still see support around SPX 2400. Should the market break out to new highs, the daily count will give way to the count on the hourly chart. Which has stubbornly remained over the past few weeks despite the overall market weakness. Medium term support is at the 2456 and 2444 pivots, with resistance at the 2479 and 2525 pivots.
The hourly chart suggests the SPX is in a subdividing Minor wave 5 of Intermediate iii. This count does align with the DOW/NAZ Minor wave 5 counts. Minor 3 topped in early-March at SPX 2401, and Minor 4 bottomed in mid-April at SPX 2328. After that low the SPX rallied to 2454 by mid-June to complete Minute i of Minor 5. Then after an historically small Minute ii correction to SPX 2408 by early-July, a rocky Minute iii was underway.
When reviewing Minute i (2329-2454), we observe a 77-point rally for Micro 1 (2329-2406) and a steep 53-point drop for Micro 2 (2406-2353). Then with an extremely oversold MACD, and positive RSI divergence, Micro wave 3 was underway. From the early-July Minute ii low, we observe a 83-point rally for Micro 1 (2408-2491) and a very steep 74-point drop for Micro 2 (2491-2417). Then again, with an extremely oversold MACD, and positive RSI divergence, it appears Micro wave 3 is underway. With downside risk looking like 3% (SPX 2400), and upside potential unlimited, risk/reward remains favorable long-term. Short term support is at the 2456 and 2444 pivots, with resistance at the 2479 and 2525 pivots. Short term momentum ended the week quite overbought. Best to your trading!
Asian markets were mostly higher for a net gain of 0.7% on the week.
European markets were mostly higher and gained 0.2%.
The DJ World index gained 1.0%, and the NYSE gained 0.9%.
Bonds continue to uptrend and gained 0.1% on the week.
Crude remains in a downtrend and lost 1.2% on the week.
Gold is still in an uptrend and gained 2.5% on the week.
The USD remains in a downtrend but gained 0.1% on the week.
Monday: holiday. Tuesday: factory orders at 10am. Wednesday: ISM services and the Beige book. Thursday: weekly jobless claims. Friday: wholesale inventories and consumer credit.