Wednesday update

SHORT TERM: flat opening then lower, DOW -45

So far this week the Asian markets gained 1.2%, and the European markets have gained 0.6%. The SPX started the week at 2840, then rallied to 2863 by Tuesday. Just 10-points shy of an all-time high it started to pullback.

The Monday rally took the SPX over 2848, quantifying an impulse wave from SPX 2692: 2743-2699-2848-2796-2863. This is the first internal impulse wave we have seen since the early-April low. It suggests the activity prior to the late-June SPX 2692 low was indeed a leading diagonal Minor wave 1 followed by a Minor wave 2. Minor 3 is now underway.

As noted earlier the rally from SPX 2692 displays 5 waves up, suggesting there could be a significant pullback at any time. Previous significant pullbacks, during this uptrend, have been between 65 and 122 points. Also of note, during the entire SPX 2796 advance to 2863, the largest pullback has only been 7-points. Anything more than that could suggest a significant pullback has just started. Today the market pushed the current pullback to 10 points early, before rebounding the rest of the day. On the SPX hourly/daily charts we have negative divergences at Tuesday’s SPX 2863 high. Best to your trading!

MEDIUM TERM: uptrend

LONG TERM: uptrend

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

About tony caldaro

Investor
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331 Responses to Wednesday update

  1. fionamargaret says:

    https://www.mcoscillator.com/learning_center/weekly_chart/how_seasonality_has_changed/
    Thanks Tom McClellan

    Thanks and love to Tony…..and everyone xx


  2. torehund says:

    Just had to post this philosophical masterpiece. Listen a bit of a time and digest it. There is a reason philosophy is of higher order than the rest of the academic disciplines. Understanding philosophy is a necessity when approaching economics, as much as long range counts dictates in EW- theory. Merely looking at one country in isolation is what most economist will grasp. Philosopical economics is looking at the entire world simultaneously. Well we are currently in a nationalistic myopic oriented phase of world history which will make matters worse for a while. A wobbly phase.

  3. torehund says:

    Inadvertent circulus viciosus: Trump increasing toll on countries that dive into hyperinflation will not benfit from their lower currency advantage that could have reversed the misery. So the currency discrepancy just widens. This will happen until the Turkish society collapses and there will be no industry left. And every time Trump rises import tax money will run into the Gov pocket until the providers succumbs. Alongside a hysterically rising Usd, Dont think Its what he intended🤔

  4. vivelaamo says:

    Newbies back. Top isn’t in. Simple.

    • Mary773 says:

      He never left.
      He is Mil Máscaras.
      The Man Of A Thousand Masks.

    • Weekly & Daily Hang Sang Index looks really Bullish

      Weekly Inside Candle Positive div

      IQ Huya reporting on Mon After Hours

      Disney rumor they want stake in IQ and Steve Gardner IQ his number one pick Stock. Gartley Bullish Pattern on IQ & Huya Stock

      What’s anybody take on Hang Sang ?

      I like IQ Stock IPO $28.01 Level Stop Loss With Gartley Pattern

      China Growth Story is huge !

      Interested on Hang Sang Comments think it’s low ? Thanks

  5. torehund says:

    Good weekend Tony and all !

    Sleepy market, except in forex. Erdogan encourages the population to sell gold and Usd, however money always escapes totalitarianism and flushes in where the system softens. No surprise the lira is a sell. Usd is the prefeable currency compared to its peers and might just have turned longterm vs the euro too.

  6. purplember says:

    short TLT. high 122.92 to low 118.15. it retraced right up to 61.8% line

  7. Lee x says:

    Nice call Tony 😉

    You still got it after all these years

  8. rd3777 says:

    About to enter a 3 of 3

  9. jobjas says:

    So many of us has been ‘nailing’ the top on this blog for the last many months and the usage of nails has gone up exponentially in the last few weeks . At this rate we may not have any nails left when we finally arrive at the top . So let us use our nails sparingly 😉

  10. scottycj1 says:

    2827.85 center BB ( using 18 dma) down thru there could get a Phil SWOOOOOOSH

    • Theodore Lerts says:

      Right back in bullish territory to close the week. Masterful close in ES. Big gap up on Monday. Then a maybe a crap.

  11. mcgcapital says:

    Also Asa.. this is extremely hard to explain properly but the level of the stock market (or any market) just reflects prices which is the price agreed to transact at by two willing counter parties. So as an example, let’s say the US stock market is $20 trillion market cap. Were prices to rise by 5%, the new market cap would be $21 trillion. But that doesn’t mean that $1 trillion of new money has flowed into the market from other places.. it merely reflects the fact that investors in the market were happy to transact at 5% more for the same assets. Flows are important because they provide liquidity, and that drives prices so positive flows into equities will usually facilitate higher prices. When there’s more easy financial conditions, people can borrow more easily, they have more liquid capital and therefore feel more confident and able to pay more for financial assets.

    Similarly in bear markets, if we drop 50%, not all of that ‘money’ flows out into bonds and cash. Some money does, but a large proportion is down to a revaluation of what investors are willing to pay, so its value destructive. If it worked that it was 1 for 1, you’d have a situation whereby markets drop 50%, and therefore 50% goes to cash. And when people decide to rebuy stocks, the market would go back to the same level overnight. It obviously doesn’t work like that as there’s value lost. So we can have bear markets without their being mass withdrawals of capital from an asset class, it’s not the only factor.

    That’s kind of why tightening monetary policy after such an extended period of loose policy is risky. You reduce demand for financial assets although the idea behind QT is that it’s been done at a level that markets can absorb. But it’s largely experimental as nobody has done this before on this scale, so nobody can be sure how it plays out.

    • rd3777 says:

      Well the markets are manipulated by share buy backs which in the old days were known as “pools”, A Ponzi scheme and a way to enrich the BOD,
      Also the Federal reserve has executed 100’s of billions of swaps with the Swiss Nat’l Bank …SNB which in the 2nd quarter purchased 85 Billion in FAANG stocks…creating a historic bubble. They really are a bunch of incompetents. We will all pay the price and it will be steep.

  12. Vishal says:

    2863 – 34 = 2829 — lets see if we get a squeeze there

    • fionamargaret says:

      ..think we have to watch 2798….if we turn there Tony might get his numbers….x

      • Ashley says:

        Not today….. Closed out shorts and it’s Friday, crisis averted for now, Y’all have a nice weekend =)

      • fionamargaret says:

        …maybe it is the scenario I mentioned before…EM problems, currencies falling and everyone seeking the safest market (this was my intellectualizing the market).
        2798 has what I see as a possible way higher…Tony’s numbers and more…

  13. gary61b says:

    ES if 2836 does not hold. I would like to see 2810 as a low for today.

  14. emuntrader says:

    $VIX looks like it needs a bit more here. so far holding up on the hourly.

  15. Theodore Lerts says:

    Perfect bear trap set today. They’re really going to get chewed up and spit out today.

  16. phil1247 says:

    es

    door has opened to 2851.5 risk for bears

  17. emuntrader says:

    Cycles guy nailing again this week.

  18. emuntrader says:

    Thoughts on $COMPQ

    Bear count in Black. Could be setting up for a large ED. Would like see the composite retrace down to the 7500 area.

  19. fionamargaret says:

    DWT…short oil to 59/60….
    ..and the usual suspects VXX, TVIX…and yes, the numbers are in regression, but liquidity is going to be the biggest problem, so be careful..
    Long the important things in life x

  20. jobjas says:

    SPX projection

  21. Page says:

    There will be no market crash, we have one more high coming this month. SPX 2800 will be a strong resistance. A significant decline will occur in the months of Sep/Oct. I have no positions long or short.

    • fotis2 says:

      Go long Gold Erdogan just gave the head up to his people to sell Gold and buy TRY

      • Page says:

        He will have tough time convincing this to his Turkish people. I have gold buy target around 1140-1150. Buy SPX next week Tue/Wed wherever it lands.

    • rd3777 says:

      Markets crash when they can’t rally. The JPN225 is a great example right now. What’s the catalyst? A currency crisis in the 3rd world. A liquidity crisis,look at the bank stocks…most or all are in 3rd waves down.

      • Page says:

        Yup, the European banks are in trouble so this will also have contagious affect on US markets. The following months Sep/Oct/Nov are very bearish.

  22. It looks as though the yield on the 10 year not may be making a head and shoulders top.
    https://stockcharts.com/freecharts/gallery.html?$TNX

  23. rd3777 says:

    There are many problems with the most over extended market is U.S. history and the biggest is complacency and a expiration day….this market could flatsh crash here….
    We are in a 3rd wave down in most world markets and in Japan and the DAX 3 of 3. Not to mention our markets have completed huge triangular tops.

  24. emuntrader says:

    2042, 2046, 2050

  25. Ashley says:

    I had to just cover some shorts, near break even and 2830 is the 50% retracement from the high, now Im a little long, lets see it bulls…. UP or die…..

  26. phil1247 says:

    schizo

    34 es target hit perfectly
    now bounce or collapse ?

  27. mcgcapital says:

    Here’s what I think has been happening this year and what needs to happen going forward for markets to be bullish/bearish.

    Firstly, I’d say that markets are driven by capital flows and liquidity, and these things are driven by how much money is chasing financial assets. This is why it makes sense that we had a strong bull market globally post 2009 despite economic data seeming quite anaemic at times particularly vs prior post recovery growth, as central banks everywhere maintained an easy money stance. Also, amongst that bull market (excluding the initial rebound off the lows in 2009), the strongest years for the S&P 500 were 2013 and 2017, and this coincided with QE3 (and BoJ ramping up their bond buying) in 2013, and the Fed easing off on their rate hike plans (pushing back the start of QT) in 2016/17. It’s no coincidence that these were also strong periods for ex-US equities as well given how much liquidity there was.

    Then if we fast forward to this year, the liquidity picture has changed massively in that the Fed have begun QT and the other central banks have started to tighten even if it’s only at the margins or through shifting forward guidance. And the markets globally have found it much harder to sustain rallies. I can see this because since the January highs, we haven’t really managed a synchronised rally to the highs across the board. Hot money is shifting between various geographic regions or different sectors, which gives the appearance that that particular market is bullish, but at the same time, other markets are falling away. Then we rotate and the opposite occurs. But the bottom line is it isn’t happening together because there’s not enough capital flowing in to make it happen.

    The majority of capital is controlled or at least advised by institutional, and most of their decision making is fundamentally driven with very little attention paid to charts and technical analysis. TA just shows you where money is flowing, but the decision on where the money should flow is taken independently of that.

    I get a lot of emails through from various asset managers having worked in the industry, and I’m interested to see how the narrative has changed around trade wars and how this compares to market action, as I believe since March this has largely what’s been driving positioning. Around the time when the markets were bottoming in late March/early April, there was a lot of talk about underweighting the US in portfolios because of the as yet unknown trade war impact and the perception that this would be bad for the US. This tied in with what we observed in that Europe and Japan rallied strongly in a fairly clean fashion off those lows (I don’t pay any attention to what the Chinese market does as there’s not much institutional exposure there so its as relevant to markets as bitcoin to me). The US markets really struggled off those lows in comparison which was confusing at the time, but to me it shows the lack of liquidity – money was being allocated to the other regions at the expense of the US.

    Then over the last few months the narrative has changed to trade wars are bad, but US companies will do the best out of them on a relative basis. And the positioning in markets has shifted such that US markets have been strong and the rest very weak.

    The US makes up just over half of the world on a market cap basis. I think for a sustained new up leg you want to see signs that capital is returning to the markets and that will mean a synchronised rally to me across all geographic regions. I’m seeing lots of amateur analysts on twitter making points about US markets going to new highs and overseas markets being irrelevant or that who cares about the NYSE as x% is foreign anyway. It’s a flawed viewpoint as its missing the fact that there’s not enough money flowing in to equities globally.

    Since May, most of the ex-US indices have been in a volatile and fairly narrow trading range. Whilst I’m kind of expecting a bearish resolution here given everything I’ve just said, there are a few things I’m looking for for confirmation that move is happening. On the S&P 500, the rally since April looks corrective to me, but nonetheless we have a series of higher highs and lows. I’m interested to see what happens if it drops below last week’s low at 2790, as that would be the first time a rally has been fully retraced and we have a lower low. Bulls want to see that hold on any pullback IMO. Given that’s a 2% drop, a 2% drop on FTSE and Dax would have them at the bottom of recent trading ranges at 7500 and 12100 respectively. So its pretty clear to me that it could get very messy if we were to fall more than 2% from here across the board. I’d also say that every market ex-US looks to have the potential of being a massive topping pattern which has developed over the last 12-18 months. That’s kind of why I’m favouring the bear scenario as I think it’s more likely that US indices break the pattern of higher lows than seeing everything break out in conjunction.

    So short term, bears in control of price and lets see where it stops. More than 2% is a massive red flag for stocks.

    • scottycj1 says:

      DAX down @ 2% now

    • aahmichael says:

      Excellent insights and analysis. This blog is fortunate to have you posting on a regular basis.

    • micky says:

      I really am sorry to see you were spooked out of your short man, but like you said, tmr is another day

      • mcgcapital says:

        Got back in this morning at 2847.. cost me 10 points but was worth it being able to switch off the screen all night as it was so boring yesterday. Also in on FTSE at 7735

        • asaraniti says:

          mcg….thank you for this post. Now that Draghi is gone in December and the new head of the EU is the Germany Finance minister, who is on record as saying he was against the concept of QE and the tappering program was too little too late. Where do you think European investors be moving money into? Bonds, no longer backed by EU…. nope….. stocks?….nope…. pending bear market? Your thoughts?

          • mcgcapital says:

            I don’t think Draghi’s term is finished until later next year as it’s an 8 year tenure and he’s been there since 2011. And no successor has been announced yet but Weidmann is the overwhelming favourite. So probably not much will happen there short term. But when there is a new president of the ECB, the policy probably won’t be as dovish as it has been as you can tell at the press conferences that Draghi often leans extremely dovish and appears a bit frustrated with how long it took him to get approval to do QE. But still, it’s a committee approach so thinking maybe a slightly more hawkish outlook but not a wholesale change.

            As for how investors will react, what I would say is that most bond investors aren’t doing it for the returns with a 10 year bund yielding 0.32%. Most institutional investment is focused around meeting liabilities and not making the most money possible. Pension plans/insurers/charities/endowments all exist to pay out monies to their beneficiaries, so the risks they face are around not being able to meet those payments. They buy bonds despite the poor returns because they match the cash flows they need to pay out or because they have statutory requirements to do so. Also capital values are relatively stable vs stocks. So regardless of what the ECB policy is, there will still be natural buyers of those assets even if the yields are rising (and rising yields often mean falling liabilities as it means a higher discount rate for discounting the cash flows due).

            On the risk asset side, i’d say that the majority of Europe use a global approach, so they already invest half their equity portfolio in the US for example due to market cap weights. I can’t see a huge relative shift out of domestic European stocks into other things, although some asset allocaters will be putting money there to follow the easy monetary policy.

            I’d say if anything I can see flows out of US stocks into foreign assets in the longer term as American institutional is much more domestic focussed than it probably should be. But it won’t be something that happens overnight, and it would be a structural change to diversify rather than something that’s tactical because there’s a perceived return benefit to doing it

  28. fxaprendiz says:

    Some food for thought

  29. lunker1 says:

    Hi Tony, I hope you’re doing well. Any chance everything since 2553 is a truncated Intermediate V? Thx

  30. fxaprendiz says:


    My view for the rest of the year.
    Either a zigzag down (my preferred count) until late December, or the alternative, an impulse lasting until late October/early Nov.
    While price targets are pretty much set now, time wise the waves can expand or contract so dates are always tentative. The 4 vertical lines are just guides regarding the daily cycles. After this current daily cycle bottoms, there should be 3 more daily cycles, which would end an intermediate and yearly cycle as well.
    I’ll monitor both counts and try to post an update in here weekly.
    (always do your own DD)

  31. aahmichael says:

    While everyone here knows about the VIX confirmation signal at the close yesterday, what seems more important to me is that it put in a hammer from underneath the lower BB. A quick glance at the chart shows that this is the first time that’s occurred in the past 2 years. I’ve never really paid attention to the VIX before, so I’ll be curious to see if this setup turns out to be of any significance.

    Monday through Thursday of this week were the 4 lowest SPY volume days of the year. Yesterday’s volume on SPY was the lowest of the year, and that’s despite 12M shares being traded in the last 30 minutes when SPX declined 6 points. Those last 30 minutes were 1/3 of the entire day’s volume.

    As mentioned before, Wednesday was 180 calendar days from the 2/9 low. The 2/9 low was an 11.8% decline from an ATH. Since 1950, all previous SPX declines of at least 10% from an ATH that did not subsequently make new ATHs within 180 calendar days turned into bear markets. 8 for 8. (This stat suffers from a small sample size, as there have only been 14 declines of more than 10% from an ATH since 1950.)

    Still short at SPX equivalent of 2863 from Tuesday. Stop lowered to 2861.

    • fxaprendiz says:

      aah you basically nailed the high.
      I was one day early, went short on Monday and then scratched the position on Wed thinking there was maybe 5-10 more points upside. Not much lost yet though. I’ll re-enter next week at the first significant bounce.
      Congrats on your trade! And as always your analysis is superb 🙂

      • aahmichael says:

        As I said at the time, I sold the same channel line that I sold 3 previous times: 4/18, 6/13, and 7/25. Like you, I don’t see the rally from the 2/9 low as anything but corrective, which is why I haven’t played the long side during any of it. The only move that I can count as an impulse wave is this last rally from the 6/28 low, but I see that as the final C wave. The alternate is that the 6/28 low ended the correction from the 1/26 high, and then it’s off to the races from there. Time will tell. Way too early to think I nailed the top. All I know at this point is that it won’t be a loser.

        Here’s another ominous stat: If SPX does make a new ATH soon, then the DJI will still be well below its previous ATH. The last time that happened was…you guessed it…2000.

    • travis01 says:

      Nice post good observation. I also went in a short a lil early but track vix daily and expect some nice action soon. GL all. *before it is said by someone, yes we will be long soon so hold your comments on world ending crashes and bead pics…we can trade both ups and downs in the market

    • Mary773 says:

      “As mentioned before, Wednesday was 180 calendar days from the 2/9 low. The 2/9 low was an 11.8% decline from an ATH. Since 1950, all previous SPX declines of at least 10% from an ATH that did not subsequently make new ATHs within 180 calendar days turned into bear markets. 8 for 8. (This stat suffers from a small sample size, as there have only been 14 declines of more than 10% from an ATH since 1950.)”

      Assuming you do not count 1987.

      “Monday through Thursday of this week were the 4 lowest SPY volume days of the year.”

      Assuming you do not count 7/3.

      • mcgcapital says:

        Didn’t 1987 drop 30+%, which makes it a bear market by the standard definition in its own right, and therefore wouldn’t be included in a stat referencing corrections (by standard definition a 10-20% drawdown)

        As for volume, I’ve not checked the numbers so don’t know if Aah’s statement is fully accurate but it’s splitting hairs. The point is that it’s been exceptionally low volume this week vs the rest of the year is correct

      • aahmichael says:

        *Assuming you do not count 1987.*

        Of course you count 1987. The 87 decline began on 8/25/87. It bottomed on 10/20/87. It took 645 calendar days (6/26/89) to make new ATHs from its bottom.Total decline was 35.9%, which makes it one of the 8 declines that failed to make new ATHs within 180 calendar days after falling more than 10% from an ATH. All 8 became bear markets (a decline >21%,) including 1987.

        *Assuming you do not count 7/3.*

        7/3 was a half day/holiday, therefore, I didn’t include it, but even as a half day/holiday it still had almost as much volume as the highest volume day of the 1st four days this week.

        7/3 = 42,187,070
        8/6= 39,089,820
        8/7= 43,055,550
        8/8= 41,980,470
        8/9= 35,577,000

        • Mary773 says:

          Your indicator therefore predicted the 1987 bear market after it had ended. Excellent. How about 2015-16, when SPX made an 8/24/15 low (equivalent to 2/9/18) rallied to make a slightly lower double top (equivalent to now), then made a lower low (2/11/16) that was just 15% from the ATH. SPX did not make a new ATH until more than 180 calendar days after the 8/24/15 low, and by your 20% criterion never entered a bear market, so you then reset the indicator to the 2/11/16 low. All of which means that your indicator allows for SPX to undercut the 2/9/18 low (thereby resetting the 180 calendar day clock) and still be in a bull market, which negates your premise that indicator suggests a bear market has begun.

          My first job out of college was working for Prudential Bache debunking trading systems, and I am afraid that your methodology falls into the familiar category of “fudging the numbers”.

          • aahmichael says:

            #1: It’s not a trading system, and it’s not an indicator. I never said a single word about predicting when a bear market has begun or when it has ended. What I have provided are simple stats gleaned from past market action. I never claimed that it was predictive of the future. It simply observes what has happened in the past.

            #2: In regards to 2015-2016 : The ATH was 5/20/15. The low was 2/11/16. The decline was 15.2%. It then took 151 calendar days from the 2/11/16 low to make new ATHs on 7/11/16. 151 days is less than 180 days. No bear market occurred.

            What I have made perfectly clear, and what you are still failing to grasp, is that the measurement of days to new ATHs isn’t from ATH to new ATH. It’s from the final low to new ATH. So, hopefully you paid closer attention to details when you were debugging systems at Pru Bache.

            • Mary773 says:

              The low corresponding to 2/9/18 (first significant low off the ATH) was not 2/11/16. It was 8/24/15, whereupon your statistical insight is obliterated by bitter reality. But carry on. Being persistently bearish in a bull market requires facile creativity with the facts.

              • aahmichael says:

                In regards to facts, I know for a fact that you won’t find a single instance where I ever referred to “first significant low off the ATH.” Yet again, your imagination has just run wild with facts not in evidence.

              • mcgcapital says:

                Lol. What I’ve picked up from this little discussion is that either:

                1. We’ve not seen a low to the 2018 correction yet, but following that the market will make new highs
                2. We’re not making a new high and we’re already in a bear market
                3. We’re going to make a new high after 180 days following the correction bottom, and this is something that hasn’t happened before.

                1 and 2 mean we drop at least 10% from current levels before rallying a further 2%, and 3 would be a something that hasn’t happened before.

                If you wanted to debunk Aah’s argument you could just say it’s a small sample size at 8, or past does not equal future, or the arbitrary choosing of 180 days as the relevant time period.

                But there’s nothing factually incorrect in what he’s writing

              • Mary773 says:

                During Sunday mass, you will be remembered in my prayers. Have a happy weekend.

              • aahmichael says:

                Thanks, but I don’t need your prayers, and praying to Jesus on my behalf would be a total waste of time.

              • Mary773 says:

                Do not underestimate Jesus. Our Precious Lord might be the only force in the universe who can impart to you that floating point dynamic time translations are theoretical poo.

              • aahmichael says:

                mcg, when a scientist discovers facts to the contrary, he throws out his theory. When an insecure person discovers facts to the contrary, they throw out the facts.

    • cj32 says:

      Nice analysis, thanks.
      SInce we did not take out 2872.87 high, are you looking at an Intermediate (C) down Or a much bearish Intermediate (3) down?
      SPX,Does it confirm on breach of 2691.99 (june 28th) low?

      • aahmichael says:

        Since there are always countless paths that the market can take, I don’t spend time trying to project, or even worry about, what form will occur next. Rather than thinking in terms of a count being confirmed or validated, I only focus on what counts have been invalidated. So, I’m always working on a process of elimination. *If* the market were to continue straight down from here, it would not be a wave 3 down, because there never was a wave 1 down. It could be a wave C, or wave Y, or if we just had a 5th wave truncation, then we would start with a fresh downward count that could be impulsive or corrective. Can’t know that until it happens.

  32. cj32 says:

    Cr.CBZ

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