Weekend update

REVIEW

Serious turn of events this week. The week started at SPX 2886. After a gap down opening on Monday the market traded down to SPX 2862. A rally into Tuesday morning turned the SPX (2895) higher for the week. Then after a lower opening on Wednesday the market started to head south in a hurry. After a gap down opening on Thursday the SPX hit 2711. Then it tried to rebound, and even had a huge gap up opening on Friday, to close the week at SPX 2767. For the week the SPX/DOW lost 4.15%, and the NDX/NAZ lost 3.50%. Economic reports for the week mostly positive. On the downtick: consumer sentiment, plus jobless claims moved up. On the uptick: import prices, CPI/PPI, and wholesale inventories. Next week’s reports will be highlighted by: the FOMC minutes, Capacity utilization, the NY/Philly FED, and housing. Best to your options expiration week!

LONG TERM: downtrend probably underway

For the past several months we had been warning that the market was probably in its last uptrend of the 2016 bull market. For the past several weeks we have been noting that the NDX/NAZ wave patterns looked complete, and the SPX/DOW might have a bit more work to do to the upside. This week the Tech sector bear market took control of the general market and everything sold off. Scale in around bear market lows. Scale out around bull market highs.

With the SPX/DOW joining the NDX/NAZ in confirmed downtrends, we can now count five waves up from early-2016. This suggests, as we have been noting the technical deterioration, that the Major wave 1 bull market ended at the recent highs. We are now expecting a shallow 15% to 20% bear market lasting several months into next year. Bear markets are often quite volatile. And a rally back to SPX 2900 at some point would not be a surprise. After the expected Major wave 2 bear market ends, the Primary III secular bull market will resume.

MEDIUM TERM: downtrend

We have noted the NDX/NAZ had been in confirmed downtrends, and probably bear markets, since early October. This week the SPX/DOW joined the growth sector with confirmed downtrends. We had thought the SPX/DOW had a bit more upside to go. Especially with the SPX nearing our 3000+ in 2018+ target, after a 2016 SPX 1810 low. SPX 2941 was the best it could do. Sixty-two percent in about 2.5 years.

With the first downtrend underway of an expected bear market it is a bit difficult to determine, in advance, how this is all going to unfold. In recent years all the selloffs, (2011, 2015/2016, and 2018) have been quite similar. About a 250+ point decline, a 50% retracement, and then a lower low for wave A. In all three cases that was one downtrend. Then an uptrend retracing about 61.8% of that entire decline. This is probably a good general guideline for starters.

SHORT TERM

The one thing we know for sure at this point is that the SPX has completed five waves up from the early-2016 bear market low. And, is now in a confirmed downtrend with the DOW/NDX/NAZ. We can assume the entire decline will correct some portion of the five wave bull market. Works just like a downtrend correcting some portion of the previous 5 wave uptrend. Only this time the five waves was from February 2016 to October 2018.

Thus far the market has dropped from SPX 2941 to 2711, about 230 points. If this is enough for the first rebound. A rally to around the 2835 pivot would appear to be underway. Keep in mind volatility is king right now. The three potential retracements from 2711 are SPX: 2799, 2826 and 2853. Short term support is at 2731 and 2656, with resistance at 2780 and 2798. Short term momentum rose to about neutral after a positive divergence on Thursday. Best to your trading!

FOREIGN MARKETS

Asian markets were all lower for a 4.6% loss.

European markets were all lower for a 4.5% loss.

The DJ World index lost 4.3%, and the NYSE lost 3.9%.

COMMODITIES

Bonds continue to downtrend but gained 0.5% on the week.

Crude remains in an uptrend but lost 4.0%.

Gold is in an uptrend and gained 1.4%.

The USD is in an uptrend but lost 0.6%.

NEXT WEEK

Monday: retail sales and NY FED at 8:30, then business inventories at 10am. Tuesday: industrial production and the NAHB. Wednesday: housing starts, building permits and the FOMC minutes. Thursday: jobless claims, Philly FED and leading indicators. Friday: existing home sales and options expiration.

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

 

About tony caldaro

Investor
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626 Responses to Weekend update

  1. Bulls should be nervous that S&P 100 > S&P 500 EW > Midcaps > Russell today. I mean, Netflix was up 14% last night after hours. The market should have screamed higher.

    Unless the rally yesterday was short covering which is now petering out and preparing the market to roll over.

  2. micky says:

    Battling to get to r 1.

  3. fxaprendiz says:

    Before presenting the new probable path for the SPX, let’s review the previous paths posted:

    The blue zigzag was discarded last Friday when SPX couldn’t go straight down to print a lower low under 2708. The red impulse is almost discarded as well, as SPX indeed rallied but in order to follow this path, SPX should be rolling over and down already and it seems like it’s not going to. Besides it would have to complete in 1 or 2 weeks time in order to still be part of the last weekly cycle, and I don’t see it happening.
    We are left then with the green zigzag, which is still possible, if it lasts at least 18 weeks from last week low. But there’s now a more probably path imho, you can see it in next chart.

    Both paths share the first 2 legs, but they will bifurcate after a lower low under 2942 is printed in a few weeks time. The green zigzag would be the most direct route, with only relatively minor bounces until it completes in about 4 months, sometime in February 2019. The other path, in violet lines, would be a more complex shape, with frequent wide swings up and down, consuming more time and probably going a bit lower than the zigzag would, and would complete in about 8 months, sometime in June 2019.
    Of course these 2 are idealized paths, only guides and probabilities, almost surely the final outcome will be different, perhaps a combination of both paths or something else altogether. So don’t be the farm on them as people in here like to say =)

  4. Bud Fox says:

    Hello….for those who read my work here, on OEW site.
    I am much more Bearish than OEW is. I own SDS at slight lower
    prices, and holding. Believe, a Bear market has begun, but that
    is only One persons view…Bud

  5. fxaprendiz says:

    Yesterday the SPX made a swing low by printing a high over last Thursday high. That’s significant in more ways than one, and I would even say it’s a game changer for the medium/long term. With said swing low the SPX not only started a new daily cycle but more than likely a new weekly cycle as well.
    Next chart illustrates why weekly cycles lows are important.

    Weekly cycles last on average 26.37 weeks, counting from the March 2009 low, and they usually run end between 18 to 36 weeks. With this the 2708 low printed last week the cycle was at 35 weeks, so unless the SPX can manage to print a lower low between now and Friday, it’s safe to say we are in week 1 of a new cycle. This means that most probably 2942 was the high of a wave 5 not a wave B of 4, since a wave C lasting 18 to 36 weeks would be too long and it will be counted better as a whole wave 4.
    It also means that we’ll have some upside pressure before taking the cycle downward again, most likely at least 2 weeks, more like 3-4 weeks before rolling over. So we’ll have many meat grinder days, oscillating between 2780-2890 before a lower high in relation to 2942 is printed.
    Lastly, it means that if the SPX is going to end this wave 4 somewhere between 2500-2400, it will need to fill a lot of time with wide ups and downs, as it has to go there but in 4 to 8 months time.
    I tried to map out 2 possible paths for those ups and downs, will post them in another message.

  6. mcgcapital says:

    I’m amazed by how many people enter trades with targets that are a long way away. Whilst it’s nice if you’re able to hop on a 5-10% move, they’re few and far between if looking for the ones that go in a straight line. Is it not far better to just look for the next 1% then adjust accordingly? So on SPX yesterday you would have switched bullish above 2780, then bought the retest of it today, and sell into 2820 which has so far been defined as resistance by the market?

    We have some people here who were calling straight to 2500 or 2600 last week, then now it held 2700 are calling 2900. I just can’t see how you can trade like that in a consistently profitable way. Just think even if you’re able to hit a big winner every so often, your win percentage is going to be too low so psychologically you’ll be prone to doing bad things like shifting stop losses, overleveraging and holding on too long when you do have a winning trade. Too emotionally draining. You also have no obvious invalidation points on the trades which allow you to get out for a small loss, so I’d guess people will just end up holding on and hoping for the best.

    There’s also loads of people using non price related things for entering trades. Stuff like RSI, MACD, breadth, time etc should be used to compliment your process and not form the basis for actually entering and exiting. This surely has to be as simple as looking for set ups where you can place a stop loss… anything else is bound to lose money in the long run.

    Not saying I’m great at trading but in the past I feel like I’ve tried lots of these things and it’s only when I scrapped them all and approached it from the standpoint of 1. Identifying price levels and support/resistance areas 2. Only entering when I can put a stop loss the other side of a level (where price shouldn’t go if right 3. Only taking trades that have at least a 2:1 risk reward and 4. Only concern myself with the next move that I became consistently profitable. Fair play if you are making money trading in other ways but ask yourself if there’s anything the market could do that would cause you a huge drawdown.. if the answer’s yes, it just means you’ve been lucky so far and need to change the process. There are a fair few bulls who have massive holes in their process if the market ever had a period where it keeps going down for example.

    • Anne Day says:

      Can you imagine to trade against the kind of people you just described 🙂

    • floyd drummer says:

      mcg,

      well done….!

      1 and 2 are huge. …maybe 2 more so than 1.

    • fxaprendiz says:

      Well said mcg.
      People in here like to think in extremes and usually call/expect a big +200 move happening in a matter of days, which is very rare. Ok we just had one, it doesn’t mean we’ll have them every week now.
      I like to think in terms of medium and long term but try to give those moves a proportionate time. And lastly, even though I map out moves in the +100 points, my actual trading is more swing trading and reactionary as you have noticed. I’d say, keep a long term view, trade what’s happening in front of you.

  7. chandra d says:

    chandra d says:
    October 17, 2018 at 12:44 pm

    yes sir u should be out of long as there will be some choppy days now can reenter on october 22

  8. torehund says:

    Iwm: has actually been in “bad lands” since June According to daily macd. Thereafter (on macd) lines are making an abc down, and mostly negative candles on the histogram too. Now the snout is pointing upwards also according to seasonality.

  9. Page says:

    Be careful going long SPX. Its flush just started, will last until next week Tuesday.
    Buy CL tomorrow or Friday.

  10. gary61b says:

    anyone thinking that was 1 of B with 2 of B in progress or are we done with B?

  11. Mark Smith says:

    Tony, suppose you had three stocks that have just declined by equal percentages. They then retrace the declines with corrective bounces of these sizes: 38.2%, 50%, 61.8%, while the market averages retrace 61.8%. Can a generalization be made that stock #1 is weaker than #2, which is weaker than #3, and therefore a better short candidate? I tend to think ‘no’, as I’ve experienced that when B is shallow, the target is often given by the high of B minus the size of A, but when B is strong, the target is given by the low of A minus the size of A, and this is lower than the former. Thanks!

  12. phil1247 says:

    kvilia .

    .. 5 of 5 down at target 69.38 CL?
    i am ready to exit

  13. phil1247 says:

    fotis

    DH ers dont need your inside day help

    we beat you to the punch by 16 es points

    your trigger buy was at 79
    DH trigger buy at 63

    nice try tho 😉

  14. lunker1 says:

    SPX 2817 60min -D

  15. Todays close will be a great indicator on momentum strength. I got an indication yesterday when it broke easily the top target. Seems this move will be higher and faster than most anticipates. it will also force adjustment of EW charts and counts. Not sure if 2880-90 is the top or all the way to 2940 but the sooner it gets there the more likely a much deeper stronger drop right after. We first have to clear 2825 and 2855.

    If we get back to a more normal uptrend which means many shallow bounces along the way we should hit the target high almost exactly at end of year, and that high can be a new high.

    Two very different paths in front of us. Not sure which it will be. What seems apparent is that momentum currently is still strong. Unless of course we have a big drop at close today.

  16. chandra d says:

    when i says november december exteremely bearish just take it as caution mixed with your price levels and ur views but dont follow blindly as nothing is 100%

  17. Harp Man says:

    The $SPX weekly Murrey Math auto setting says 2658 bottom, 2970 peak. Maybe sell into bottom pre election, then post election rally to peak.. These auto settings can be very accurate.

    • chandra d says:

      yes harp murreymath good for intra also

    • So confused. if the sell signal is now thru the 22nd how high can this current move go before we drop to 2650’s by the 22nd? is there a target for absolute highs for current move? is there a timeframe for the drop? If not then it’s possible we continue higher still right now and as late as Friday or next Monday we drop fast and hit the lows?

      Are you implying uptrend should be over today?

  18. chandra d says:

    the next buy signal will come on 22oct it will be up till oct29,30 only one post

    • mcgcapital says:

      Lol how can you possibly say that when you don’t know where price will be on 22nd October? Could understand someone saying ‘right buy now, bullish above x so stop below there.. expect it to last a week or so’. But you’ve no idea whether price will be high or low in the range by then or where the stop loss would have to go, so it’s just pointless conjecture

      • chandra d says:

        sorry sir dont take my advice i have one question whole world talked about 3000+ top will be formed but why it topped on 9/21/2018 at 2940 ??

        • mcgcapital says:

          Because that’s where supply finally overcame demand.. as far as I can see there was nothing special about 2940 and can’t remember anyone pointing it out in real time as the high. Market was making higher highs and lows until that point but with lots of internal divergences, so we could only speculate it was running out of momentum. Key was the failure to make a new high above 2940 at the start of October, then the new low under 2864 on last Tuesday

    • fionamargaret says:

      DWT had a DT breakout….so down for oil
      TBT is doing quite well…up to 51
      2785, 2598

  19. lml25 says:

    Last one,from Al Brooks
    The final hour is important. If last week was a bear trap and yesterday was the start of a bull trend, the bulls will do bullish things. One thing they can do is buy into the close so that today will form a consecutive bull trend day. If the Emini is off the high after 11 a.m. PST, day traders should look for a buy setup that could lead to a rally into the close.

    Alternatively, if yesterday was just a relief rally in a bear trend, there should be bad follow-through buying today. Therefore, if the Emini is near the high after 11 a.m. PST, day traders will look for a sell setup that could lead to a reversal down to below the open. That would create a bear body on the daily chart. Today then would be a bad follow-through day and it would reduce the chance of a continued strong reversal up on the daily chart.

  20. Is this a 3 wave move up from recent lows or 5? if we hold today at less than 50 percent retrace I say 5. that would put the move at 2855 area the last target of Tony’s. we are in the middle, of earnings season and despite the headlines on some companies that fell short the majority is right on target. I find it hard to imagine a nasty fall as daily earnings comes in very positive. That’s usually why nasty drops in October usually happen on the last week of month when most of the news is out. There should be enough investors hooked on the very long bull run to view their particular stocks as bullish after the numbers comes out.

    In fact I would expect 2855 to also be broken on the upside. I can envision close to 100 percent retrace from the start of this drop. Fighting earnings and momentum indicators that easily broke out yesterday above top targets.

  21. phil1247 says:

    es bear below 2801.5 now

    no asa i dont like any longs now

  22. lml25 says:

    Trump dumped a China trade update–“not ready to negotiate” and the dollar took off–as it has done all year when trade war negatives appeared.GDX reversed a percent.Gold HATES bad China news.Later all.

  23. phil1247 says:

    CL

    69.39 PROFIT target coming up…… exit time

  24. Page says:

    Minimum SPX downside will be retest of last week’s low 2700sh.

  25. There is a profit target coming up on /ES at 2786.86….that could be a nice counter trend rally to play. Are you going to take it phil?

  26. lunker1 says:

    phil es 78.75 support?

  27. phil1247 says:

    es

    straight up above 2799
    potential resistance at 2828.28

  28. Anthony Saraniti says:

    Update to last nights observation /VX and /ES inflection points. /VX tested and defended it’s 61.8% LONG. Yes, there was a break of the long but re-defended…. common for /VX trading. Until 17.30 breaks….this is bearish for stocks. /ES is declining and appears to be testing it’s 50% EXT. LONG (yellow line). Should /ES break it’s 61.8% EXT LONG (red line), that would be bearish for stocks.
    Note the inverse relationship between the 2 index’s. Is/did /VX trading portending a possible equity short setup? We’ll see. DH charts.


  29. STEPHEN BARTLETT says:

    I did say the top was too easy. Risk is that this rally is a wave c and the low was off a triangle which isn’t great but Nasdaq does not show the same and we are going higher there. If tech is not bursting nothing is.

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