The week started at SPX 2781. After a slightly down opening on Monday the market dropped to SPX 2722. Tuesday it had a gap up opening, hit SPX 2743, dropped to 2719, rallied to 2755, then dropped to 2715. Another gap up opening on Wednesday carried the SPX to 2747. But it quickly reversed trading down to a low of SPX 2671 on Thursday. After that it began to rebound and hit SPX 2747 on Friday. For the week the SPX/DOW lost 1.9%, and the NDX/NAZ lost 2.35%. Economic reports for the week were mostly positive. On the downtick: capacity utilization, the Philly FED, plus the budget deficit and weekly jobless claims rose. On the uptick: the NY FED, the CPI, retail sales, export/import prices, business inventories, and industrial production. Next week’s reports will be highlighted by durable goods, the leading indicator and housing. Best to your holiday week!
LONG TERM: downtrend probable
Now that some of the vocal pundits have been touting a global economic slowdown, and possibly a bear market and recession, there are two charts we would like to cover. First confirming the economic weakness is the ECRI. Notice their leading indicator has dropped below zero in recent weeks indicating some softness in the economy. It has not dropped to levels that would suggest a recession is on the way. In fact, it does not even look like 2015/2016 yet. Which was a bear market with no recession.
Second is the long term SOX index. Semiconductors have been hammered lately with some of the popular stocks down nearly 50% from their highs. This is somewhat to be expected when the 2-year cycle is bottoming. We are not sure where the index will bottom. But the low should occur this year: 2008-2010-2012-2014-2016-2018. After it does the SOX should launch into another 1 to 2 year up cycle.
Our long term SPX count remains the same. Five Intermediate waves up, with a subdividing third wave, from early-2016 to late-2018 to complete a Major wave 1 bull market (1810-2941). After that high the market entered what we suspect will be a short-lived Major wave 2 bear market, with a possible loss of 15% to 20%.
MEDIUM TERM: uptrend possible
The first wave down of the bear market, Intermediate wave A, appears to have ended at SPX 2604 (11.5% decline). Now the market is in a counter-trend Intermediate wave B rally. Since Int. A was three Minor waves down, we have been expecting Int. B to be three Minor waves up. Minor wave A topped at SPX 2815, and Minor wave B probably bottomed at SPX 2671. After the Minor wave A high we were expecting a drop to SPX 2700. The market went right through that level on Wednesday, and bottomed on Thursday.
We have been expecting the rising Minor B to rally back to SPX 2815 area or slightly higher. However, due to volatility and seasonal factors it could rally all the way to SPX 2880. At that level Minor C would about equal Minor A. After Int. B completes then the bear market should resume with Intermediate wave C.
At the recent SPX 2671 low the market presented a short term double positive divergence, and a sufficient oversold condition on the daily RSI. On Friday the SPX put in its first higher daily bar since the Minor wave B began. Further signaling that Minor B may have indeed ended at SPX 2671. From that Thursday low we have counted eight waves up, with a possible ninth underway: 2709-2691-2735-2712-2739-2720-2747-2734-2744 so far.
Not expecting any impulsive activity for a counter-trend wave, this choppy overlapping activity looks quite normal. We think it should continue this way into early December. Then the market is likely to rollover heading into the FED’s next rate hike in mid-December. January could be a nasty month to start the year. Short term support is at the 2731 and 2656 pivots, with resistance at the 2780 and 2798 pivots. Short term momentum ended the week just below overbought. Best to your holiday trading.
Asian markets were mixed on the week for a net loss of 0.2%.
European markets were all lower losing 1.8%.
The DJ World index lost 1.2%, and the NYSE lost 1.1%.
Bonds appear to be uptrending and gained 0.6% on the week.
Crude remains in a downtrend and lost 5.8%.
Gold is in an uptrend and gained 0.5%.
The USD is still in an uptrend and gained 0.1%.
Monday: homebuilders index. Tuesday: housing starts and building permits. Wednesday: weekly jobless claims, durable goods, existing home sales, consumer sentiment and leading indicators. Thursday: Thanksgiving.
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