Weekend update

REVIEW

The week started at SPX 2833. After a slightly higher open on Monday the SPX rallied to 2843, dropped down to 2820 in the afternoon, and then rallied back to 2843 on Tuesday. Wednesday’s gap down opening took the SPX to 2802. Then a Wednesday rebound and gap up opening on Thursday took the SPX to 2850. Friday the market opened a bit lower on options expiration. The market dipped to SPX 2834, then rallied to 2856, before ending the week at 2850. For the week the SPX/DOW gained 1.0%, and the NDX/NAZ lost 0.35%. Economic reports for the week were plentiful and mostly higher. On the downtick: the Philly FED, the NAHB and consumer sentiment. On the uptick: import prices, retail sales, the NY FED, industrial production, business inventories, housing starts, building permits, leading indicators, plus weekly jobless claims declined. Next week’s reports will be highlighted by the FOMC minutes and Jackson Hole.

LONG TERM: uptrend

The following is a follow up to last week’s write up on the US – China trade dispute. A Chinese delegation will discuss trade with the US on Tuesday and Wednesday in Washington DC this week. This is just before another round of tariffs are scheduled to kick in on Thursday. Meanwhile, the SSEC continues to makes new lows for the year after hitting a 2 year high in January. It is down 25% for the year. In the charts that follow you will observe that the SPX also made a 2 year high in January, sold off in February, doubled bottomed in April, and is now only 1% below its all-time high.

The Major wave 1 bull market continues to unfold. Intermediate waves i and ii completed in the spring of 2016, and Intermediate waves iii and iv completed in the spring of 2018. Int. wave i was simple, and Int. wave iii subdivided into five Minor waves. Int. wave ii was a zigzag, and Int. wave iv was a flat. Textbook Elliott Wave. Intermediate wave v, of Major wave 1, has been underway since early-April. When it concludes the bull market could end with a Major wave 2 bear market. We are still expecting SPX 3000+ by 2018+ before this bull market ends.

MEDIUM TERM: uptrend

After the April SPX 2554 low the market rallied to SPX 2791 by June. We labeled this Minor wave 1 of the Intermediate wave v uptrend. The pullback to SPX 2692 that followed into late June we labeled Minor wave 2. Minor wave 3 has been underway since then. Early last week the SPX made a new uptrend high at 2863, we saw five waves up from the Minor 2 low, and expected a significant pullback if the market declined more than 7 points. The pullback started last Thursday, and continued into Wednesday of this week when the SPX hit 2802. At that low the DOW displayed clear positive divergences. While the SPX was just oversold. The market then rallied for the rest of the week.

At the recent SPX 2863 high we decided to label that high Minute wave i of Minor 3. We did this because it was a simple five waves up, and similar in length to the three previous Minute degree rallies during Minor 1. The low that followed, SPX 2802, was quite naturally labeled Minute wave ii.

At Wednesday’s SPX 2802 low the SPX was 2.5% away from its all-time high. What makes this important is that not only does the SPX need to make at least all-time highs to end its bull market. The DOW, NYSE and DJ World index need to do so as well. And they were much further way than SPX 2.5%: DOW 6%, NYSE 8%, and DJW 9%. If the SPX were to rally 9% from Wednesday’s 2802 low, it could hit 3054 when the DJW makes new highs. We don’t see this bull market ending until all four of these indices make new highs.

SHORT TERM

After the SPX 2692 low in late June, we were expecting to observe a nice clear impulse wave to continue the uptrend. And we got it: 2743-2699-2848-2796-2863. Then we expected a pullback to the lower-upper SPX 2790’s, and the 2798 pivot range. That concluded on Wednesday at SPX 2802. From Wednesday’s low the market has now rallied straight up to SPX 2856. It appears the SPX is heading to all-time new highs (2873) in the coming weeks. The NDX/NAZ hit all-time new highs in this uptrend back in June, and are still rising.

If Minute iii, of Minor 3, equals Minute i, then the SPX should hit 2973 in the next few weeks. Short term support is at the 2835 and 2798 pivots, with resistance at the 2858 and 2884 pivots. Short term momentum ended the week just below overbought. Best to your trading!

FOREIGN INDICES

The Asian markets were mostly lower on the week for a net loss of 1.6%.

The European markets were all lower and lost 1.9%.

The DJ World index lost 0.4%, while the NYSE gained 0.5%.

COMMODITIES

Bonds are uptrending again but lost 0.1% on the week.

Crude remains in a downtrend and lost 3.6%.

Gold continues to downtrend and lost 2.9%.

The USD is still in an uptrend and gained 0.3%.

NEXT WEEK

Wednesday: existing home sales, FOMC minutes, and conclusion to China-US trade meeting. Thursday: weekly jobless claims, and new home sales. Friday: durable good orders.

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

About tony caldaro

Investor
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356 Responses to Weekend update

  1. phil1247 says:

    Chris

    from friday with the 2835 and 2832
    i was just giving the -23 and -618 targets
    35 hit.. 32 did not

    same on the long in afternoon
    56.5 was a sweet level to exit

    ” almost impossible to push past -618 target without a pullback first “

    Like

    • Vishal says:

      Phil,
      how do you use the bollinger bands and mid line ? i was thinking there has to be some trick to identifying reversals or how strong a trending move is ?

      Like

      • phil1247 says:

        hi vishal

        what you see on the chart happens all the time
        after a strong push outside the upper boll band
        you often see a pullback that holds at the 18 period ma
        here it coincides with the .50 retrace shown
        a perfect place to go long risking only 1.5 es points
        to make 10 to 15 points
        ideally you would take 1/2 profits at -23% target
        and leave the rest hoping for -618 target which worked in this case

        Like

    • chrisk44342 says:

      I was referring to 32 only in the hypothetical. I don’t recall what you said phil- just making a point 🙂

      Like

  2. schizo1688 says:

    Thanks tony !

    Like

  3. mcgcapital says:

    This coming week looks to be an extremely important one for market direction. I still see the most likely outcome from here as being a major break lower across the board. I hate trying to front run news flow as you never know what might come out, clearly people are expecting some sort of resolution to the US-China trade dispute this week and for that to cause new SPX highs. So who’s going to back down? I think both sides have been pretty clear in their views and they’re diametrically opposed. All I’ll say is, if this doesn’t happen, nearly everyone is overweight to the US looking for this so I wonder what will happen if nothing is resolved. It’s also unlikely anything major would happen this week as the talks are low level.

    As for saying that the DJ World index has to make new highs such that we can forecast a 9% rally, I’d say that looks very unlikely. If I give the bulls the benefit of the doubt, and we get to SPX 3000, that’s 5% from here. The US is around 60% of market cap weighted indices. So to get to a 9% overall rally for global stocks, it will take both SPX 3000 AND a near 15% rise for the UK, Europe and Japan which make up the bulk of the other 40%. We’ve literally just broken lower on the FTSE this week after 3 months of consolidation, and the Dax is in a very clear downtrend. Nikkei making lower highs. Where is this rally going to come from and why? There just aren’t any catalysts for it given the technical set ups as we’re not just asking for a sizeable short squeeze we’re asking for a major re-rating upward at a time when growth ex-US looks to have peaked and heading lower.

    I’m starting to feel like this is another 2015 where in a few months’ time charts will be getting relabelled with a failed fifth. How anyone can look at this rally from April and say it looks great us beyond me, it’s meandered upwards with lots of volatility, which is nothing like any other post 2009 rally off the lows. Nearly everything is in place for a significant top to me:

    1. Increase in volatility near prior price highs – Check.
    2. Breakdown in ex-US markets, as is often the case with the US the last to go – Check
    3. Liquidity on the wane – Check
    4. Extreme and unrealistic optimism on earnings going forward, and failure to break out on good earnings reports – Check
    5. Growth peaked? Looks to be the case outside the US (I’d argue the US will follow) – Check
    6. Loss of leadership? Some tech names don’t look great – Check

    Short term, Monday’s have had a tendency to be weak as the Friday night vol crush is unwound. We also have a pattern where SPX has risen 6 weeks out of the last 7, which looks quite stretched. Typical drawdown after such a pattern is 3%.

    I find it odd how everyone thinks we will just make new highs and then have a bear market. Bear markets and corrections come when markets fail to make new highs, or make new highs and then fail to sustain them. Across all indices since January we’ve been doing exactly that. So far, no SPX/Dow/Dax/Nikkei new high, a fleeting and unsustained FTSE new high and the Nasdaq making new highs but frequently selling off on new highs. Doesn’t sound bullish to me. I’d say there’s no requirement at all for US indices to make new highs here, the increased vol under prior price highs and extreme optimism in regional positioning towards the US makes a reversal likely.

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    • Anne Day says:

      I can see that you strive to be logical. But I often felt that I could just change your writing to say whatever I wanted to say.

      As an example. Suppose FTSE made a sustained new high. I could say “While FTSE indeed made a sustained new high, it has been stationery for quite some time. This makes an imminent reversal very likely”.

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      • mcgcapital says:

        If FTSE made a sustained new high and then consolidated above it (or was stationary for some time as you said), I’d say that was bullish action. So if we’d broken the recent trading range 7500-7800 to the upside, and then held 7800 on any pullbacks, that would be a buy set-up with a stop below 7800.

        If FTSE made a new high above 7800, and then failed to hold the breakout above there, that implies weakness or at least a period of lower prices before building the momentum again to hold the breakout.

        Since March we basically rallied in a straight line from 6840-7900, and by the time we got to 7900, we were up for 9 weeks on the spin. Always meant that it might struggle to hold 7800 on pullbacks as we were due at least some mean reversion at that point. And that’s exactly what happened… we held the 7800 breakout for only 2 days before flopping back in to the range. At that juncture, on the break back below 7800 I was then looking for a pullback to the next area of possible support at 7600 which we got. And after that held, it had bullish potential again. But 7800 held all the rallies. and we then dropped to 7500 in June and have subsequently traded 7500-7800 with lots of volatility since then, until this week.

        You can have a view on which way something is going to go, and it’s impossible to not have that bias. And it’s true that I’ve always thought we’d break this 7500-7800 range lower mainly because we didn’t hold 7600 and break 7800 first time which is what I’d have expected from a bullish market. But what’s important is to know exactly where you’re wrong and exit the trades. I’d say on FTSE I have a decent hit rate of about 70%… if I didn’t exit on the other 30% I’d not make good money, if at all.

        So basically the current set up is that we’ve had a break lower out of that trading range on Wednesday. And the rally back so far looks like a retest of the range from below. As long as it holds under 7600 and then breaks to fresh lows, the pattern has massive downside potential. If we reclaim 7600 next week, then that pattern becomes less clear and bulls in control again short term. It doesn’t mean we’re heading back to the top or new highs, but it means it can squeeze higher and the pattern isn’t overly clear.

        We’re only 30 points below 7600 so the risk reward selling in to it is pretty good. Have to stay flexible, it can always move any way at any time. All you can do is identify the patterns. Worst thing you can do is to just draw lines on a chart and then shift them up or down when the market is clearly telling you you’ve got it wrong.

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        • Anne Day says:

          Appreciate your point of view. As always.

          I am starting to pay more attention to FTSE and may probably soon build an investment model on it for my own use. Cheers!

          Like

          • fionamargaret says:

            Anne…”may probably”…?..”may” suggests a doubt, while “probably’ has a degree of certainty….”will probably” or “may soon” (and forgetting probably) ..neater ?? x

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          • Anne Day says:

            That definitely sounds “odd” 🙂

            I am still equivocal. Trying hard to cut down my time spent on trading.

            Like

          • fionamargaret says:

            ..what would you like to do instead?? I knew you would not disappoint in answering..
            Whether it is constructing a legal argument, or parsing through evidence, words are what we have to work with, and their placement and tone within a sentence is paramount.
            Now if you are thinking of writing poetry or lyrics, then you have the freedom to be fanciful..like your previous very delightful reply….
            I had better submit some good market ideas tomorrow, or I am going to get moderated…x

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          • Anne Day says:

            Sorry to disappoint you. I hope to go back to computer coding 🙂

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          • fionamargaret says:

            ..but that is wonderful Anne…just don’t forget the romantic within you, and leave me a message now and again…x

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    • phil1247 says:

      WOW mcg …
      that is some ” wall of worry ”

      diagnosis : buy

      whether its 3034 or 3054 …..
      . you can start to worry after 3000

      Like

      • jobjas says:

        belief systems are so strongly embedded it is difficult to convince anybody- all one can do is present an opposing view for them to consider .

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        • mcgcapital says:

          Exactly.. I’ve built a case based on what I think is the balance of the evidence. It can always go the other way. Think we’re going to get a move in the next couple of weeks either way

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  4. chrisk44342 says:

    Great analysis thanks Tony

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  5. phil1247 says:

    thanks Tony

    3054? i just cant see it ……..

    all i got is 3034… 😉
    where are you getting those extra 20 points ?

    Like

  6. Lars Johansen says:

    Thx Tony. But what About the negative divergenses on 60 mins chart for s&p and dow. Also – div at Dow daily. Europe looks awful. ? Thx

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  7. searchme2017 says:

    Tony…..thank you for your expertise, your opinions, and especially your time.
    God bless…

    Like

  8. ko68 says:

    Thanks Tony!

    Like

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