The week started at SPX 2659. After a gap up opening on Monday and run up to SPX 2707 the market sold off to 2604 in the last hour of trading. Then the market started to rally. On Tuesday it rallied to SPX 2674, pulled back to 2641, then gapped up on Wednesday to 2724. After a pullback to SPX 2709 it rallied to 2737 before the close. Another gap up opening on Thursday was sold off to SPX 2709. But the market rallied again and hit SPX 2757 on Friday. After that the market started to pullback. The decline took the SPX to 2700 before it bounced to 2723 to end the week. For the week the SPX/DOW gained 2.4%, and the NDX/NAZ gained 2.2%. Economic reports for the week were mostly higher. On the downtick: Case-Shiller, Chicago PMI, ISM, plus the trade deficit increased. On the uptick: personal income/spending, consumer confidence, the ADP, auto sales, factory orders, payrolls, plus jobless claims declined. Next week’s reports will be highlighted by the FOMC meeting and ISM. Best to your week!
LONG TERM: downtrend probable
This week S. Korea joined, Canada, China, Germany, and Spain in confirmed bear markets. Despite the volatility and large price drop the four major US indices have not confirmed bear markets yet. We may not see a bear market confirmation in the US until the bear market is nearly over. That’s what happened in 2016, and is part of the reason we were caught off guard at that low. But one lives and learns how markets respond to uptrend/downtrend confirmations.
We continue to count the five wave movement from the Feb 2016 SPX 1810 low to the Sept/Oct 2018 SPX 2940/41 high as a completed bull market. Major wave 1. Since then we have been expecting a Major 2 bear market to unfold. Typically they do not take long to unfold, a few months, and the decline is usually a modest 15% to 20%. We have tentatively labeled the SPX 2400 with a line, suggesting the maximum downside we’re expecting. Thus far the decline from SPX 2941 to 2604 might have ended the first downtrend, tentatively labeled A. And a potential wave B uptrend is now underway.
MEDIUM TERM: downtrend
We labeled the Wave A downtrend as an abc: 2711-2817-2604. The first decline, 230 points, was nearly equal to the second decline, 213 points. We noted last weekend we expected a drop to the OEW 2594 pivot, and then expected the market to reverse. The SPX fell to within 3 points of the pivot range on Monday, and then reversed.
If the market did complete the wave A downtrend at that SPX 2604 low, we expect the wave B to be an uptrend that retraces 50% to 61.8% of the entire decline: SPX 2773 – 2812. Since the previous B wave was at SPX 2817 it could move higher. Also, we’re beginning to believe that this first downtrend was indeed an Intermediate wave. It dropped further than we expected, nearly down to the spring lows, for it to be a Minor wave. Plus, the NAZ/NDX declined nearly 15%. If this works out, then we could have just ended Int. A, are rising in Int. B, and should see an Int. C decline to end the bear market by early next year.
As noted above the first downtrend, Int. A, dropped from SPX 2941 to 2604. The three retracement levels for an Int. B uptrend: 2712, 2773, and 2812. The market has already traded as high as SPX 2757 on Friday. Since Int. B is a counter-trend rally it should be quite choppy, and probably will take a good deal of time to unfold.
Thus far, in this first rally up from the SPX 2604 low we have: 2674-2641-2729-2709-2737-2709-2757. This looks like a simple zigzag: 2737-2709-2757. The normal downward retracements for this advance would be SPX: 2699, 2681 and 2662. On Friday the market sold off from SPX 2757 to 2700 before bouncing to 2728, and ending at 2723. The Friday low may have been all of the retracement as the hourly RSI is already oversold after the negative divergence at the SPX 2757 high. An equal rally from this 2700 low could push the SPX to 2853. Short term support is at the 2656 and 2632 pivots, with resistance at the 2731 and 2780 pivots. Best to your trading!
Asian markets were all higher and gained 4.3%.
European markets were mostly higher and gained 2.0%.
The DJ World index gained 3.2%, and the NYSE gained 2.9%.
Bonds continue to downtrend and lost 0.9%.
Crude is in a downtrend as well and lost 6.6%.
Gold is in an uptrend but lost 0.2%.
The USD may be starting a downtrend but gained 0.3%.
We have been following this very volatile cryptocurrency since its bear market began in late 2017. It has crashed, as it normally does, from $20000 to just under $6000 during 2018. Currently there looks to be a nice wave pattern potentially completing near the lows. It could break either way out of that 6 month triangle. But usually, in this pattern, the breakout is to the upside. This is not a recommendation. Just an observation.
Monday: ISM services at 10am. Tuesday: election day. Wednesday: consumer credit. Thursday: the FOMC statement, and weekly jobless claims. Friday: the PPI, consumer sentiment and wholesale inventories. Best to your week, and get out and vote!