Weekend update

REVIEW

Another volatile week. The week started off at SPX 2760, after the best week in 8 years. A gap up opening Monday put the SPX at 2800, and then it started to pullback. On Tuesday the market gapped down at the open and traded down to SPX 2697. Another gap down opening on Thursday took the SPX to 2622 before it started to rebound. After closing at SPX 2696 on Thursday, the market rallied to SPX 2709 on Friday before heading back down again. Another pullback took the SPX to 2623, before it rebounded some into a 2633 close. For the week the SPX/DOW was -4.55%, and the NDX/NAZ was -4.85%. Economic reports for the week were mixed. On the downtick: monthly payrolls, the ADP, factory orders, construction spending, plus the trade deficit increased. On the uptick: ISM manufacturing/services, wholesale inventories, consumer credit, plus weekly jobless claims improved. Next week’s reports will be highlighted by industrial production, the CPI/PPI and retail sales.

LONG TERM: downtrend probable

If life were this simple. Notice the MACD crossover to the downside during the beginning of bear markets. Then back up again during the beginning of bull markets.

At the beginning of the bear market we noted we were expecting either a double zigzag or something more complex. We should have left out the “something more complex”. Because that is exactly what we are dealing with right now. Since the October top the SPX has dropped 300, rallied 200, dropped 200, rallied 200, then dropped 200 again. After the initial drop, just a big trading range between 2600 and 2800. Great for day traders. But not so great for EW technicians trying to uncover an overall pattern. Knowing exactly where one is in a bear market makes it easier to identify its ending.

Longer term nothing has changed. Five Intermediate waves up, with a subdividing third wave, from early 2016 to late 2018 to complete a Major wave 1 bull market. After that a Major wave 2 bear market began. So far, despite all the volatility, the SPX has only lost 11.5% from the high. Year over year, however, the market is about 1% lower. The year started at SPX 2674. The ECRI ticked down a notch.

MEDIUM TERM: downtrend

This bear market started off simple enough: a zigzag down to SPX 2604, then an a-b-c rally to SPX 2815. After that it has been a mess to count: -200, +200, -200, +100, -100. But Friday appears to have cleared it all up. What it looks like we are dealing with is an Intermediate wave A taking the form of a double zigzag. First a Minor A zigzag SPX 2941-2603, then Minor B to SPX 2815, now a Minor C zigzag to SPX 2622 thus far. It’s been quite choppy and volatile just like a bear market.

Since Minor A dropped 337 points, Minor C should have some Fibonacci relationship to A before it ends. We see four possibilities: SPX 2607 (0.618), SPX 2577 (0.707), SPX 2550 (0.786) and SPX 2478 (equal). Two of these four fall within OEW pivots: 2577 and 2478. Too early to tell which is likely to work out. But with all the political problems out there, (US, China, Italy, France, Ukraine and the UK), any of these levels are possible.

SHORT TERM

Trying to track this market with short term waves has been a near impossible task. At times this market just seems to bounce between OEW pivots with no identifiable pattern. Minute wave C, of Minor C, had 7 waves down to SPX 2622, 7 waves up to SPX 2709, and now 5 waves down to SPX 2631, (2643-2665-2623-2650-2631). Another 7 wave pattern in the making? Hopefully we will see the end of this downtrend soon. Then we could get a good counter rally uptrend for a while.

Short term support is at the 2632 and 2594 pivots, with resistance at the 2656 and 2731 pivots. Short term momentum ended the week oversold. Best to your trading!

FOREIGN MARKETS

Asian markets were mostly lower on the week losing 0.9%.

European markets were also mostly lower losing 2.3%.

The DJ World index lost 3.5%, and the NYSE lost 4.1%.

COMMODITIES

Bonds continue to uptrend gaining 1.0% on the week.

Crude appears to be trying to start an uptrend and gained 3.3%.

Gold remains in an uptrend and gained 2.2%.

The USD is still in an uptrend but lost 0.4%.

NEXT WEEK

Tuesday: the PPI. Wednesday: CPI and the budget deficit. Thursday: weekly jobless claims, and export/import prices. Friday: industrial production, capacity utilization, retails sales, and business inventories.

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