The week started at SPX 2760. After a gap up opening on Monday, and higher open Tuesday, the SPX rallied to 2796. A gap down opening on Wednesday took the SPX to 2771. But the market gapped up on Thursday, hit SPX 2799, then moved over 2800 on Friday. For the week the SPX/DOW gained 1.9%, and the NDX/NAZ gained 2.05%. Economic reports for the week were mostly positive. On the downtick: import prices and consumer sentiment. On the uptick: consumer credit, the CPI/PPI, wholesale inventories, plus the budget deficit and jobless claims improved. Next week’s reports will be highlighted by the FED’s semi-annual report to congress, industrial production and housing. Best to your week!
LONG TERM: uptrend
The range bound activity in the SPX/DOW, since February’s decline, has kept most of us guessing what EW pattern was forming during all that choppiness. At times, after the April low, the market looked like it was ready to make new highs. Which the NDX/NAZ/R2K did. And at other times it looked like it was going to retest the February/April lows again. Which clearly has not happened. What has happened, as often does, the market eliminates one potential count after another until it settles into its final pattern. The latter occurred this week.
Longer term the 2016 Major wave 1 bull market continues. Four of the five Intermediate waves that create a Major wave bull market have already completed. Intermediate waves i and ii ending in the spring of 2016, and Intermediate waves iii and iv ending in the early-spring of 2018. Int. wave i was simple, and Int. iii subdivided into five Minor waves. Int. wave ii was an irregular zigzag, and Int. iv was a flat. A nice and clear pattern until the choppiness in recent months. Nonetheless, we’re still looking for SPX 3000+ by 2018+.
MEDIUM TERM: uptrend
After the April downtrend low at SPX 2554 the NDX/NAZ/R2K impulsed higher, but the SPX/DOW was nothing but choppy three wave movements higher. It looked more corrective than impulsive. After the uptrend seemed to have failed at SPX 2791 in early June, while the NDX/NAZ/R2K were already making new all-time highs, we settled on either an Int. wave iv triangular pattern or a complex flat pattern. Both patterns suggested retest of the February/April low, or near retest.
On the first trading day of July the market gapped down at the open, hit SPX 2699, and appeared ready to confirm a downtrend within days across all four major indices. A downtrend confirmation would have confirmed the triangular, or complex flat, Int. iv correction. But the market was not doing that kind of pattern and started to rally. When the downtrend did not occur we posted a potential impulsive pattern on the SPX hourly chart. Then by Wednesday of this week we noticed the NYSE had a clear leading diagonal triangular pattern from its April low.
This pattern would explain the choppiness in the SPX/DOW since the April low. Diagonal triangles are created by choppy three waves patterns forming five larger waves that create an even larger wedge formation. Supporting the LD pattern was the strength being displayed in market breadth since April.
To increase the probability of this LD scenario a few things had/have to occur. Continuation of the April SPX uptrend with a rally above 2791. This occurred on Tuesday. The rally needed to exceed SPX 2802 to eliminate the IV triangular scenario. This occurred on Friday. The rally from the recent SPX 2692 low to start looking impulsive. So far we have three waves up: 2743-2699-2805. And the market should started acting like a third wave, since Minor waves 1 and 2 should have already completed.
Should we get all the parameters noted above the SPX could hit 3000 before this uptrend ends. With Minor wave 1 equaling 237 points (2554-2791), and Minor 2 at 2692. If Minor waves 3 thru 5 are only 1.5 times Minor 1 we hit SPX 3048. Let’s see how the remaining parameters play out. Short term support is at the 2798 and 2780 pivots, with resistance at the 2835 and 2858 pivots. Short term momentum ended the week with a negative divergence. Best to your trading!
Asian markets were mostly higher for a gain of 1.9%.
European markets were also mostly higher for a gain of 0.7%.
The DJ World index gained 1.0%, and the NYSE gained 0.8%.
Bonds continue to uptrend but were flat on the week.
Crude is also in an uptrend but lost 3.8%.
Gold is in a downtrend and lost 1.2% on the week.
The USD is still in an uptrend and gained 0.9%.
Monday: retail sales, the NY FED at 8:30, then business inventories at 10am. Tuesday: industrial production, the NAHB, and FED Powell congressional testimony. Wednesday: housing starts, building permits and the Beige book. Thursday: weekly jobless claims, the Philly FED, and leading indicators. Friday: options expiration.