Nastiest week of the bear market by far. The selling felt like it was on cruise control. The week started at SPX 2600. After a gap down opening on Monday the SPX made a new downtrend low at 2531. A gap up opening on Tuesday ended with a lower downtrend low at SPX 2529. Wednesday, FOMC day, had a steady rise to SPX 2585 just after the 25bps rate increase was announced. Then for the next hour, including a half-hour pressor with FED chairman Powell, the SPX dropped 100 points to a new downtrend low at 2489. Thursday’s gap down opening added to the selling, and another new downtrend low at SPX 2441. Friday had a quiet open, rallied some on NY FED Williams CNBC interview, then dropped 100 points to a new downtrend low at SPX 2409. New downtrend lows all five days. For the week the SPX/DOW lost 7.0%, and the NDX/NAZ lost 8.35%. Economic reports for the week were mostly positive. On the downtick: the NY/Philly FED, NAHB, plus weekly jobless claims rose. On the uptick: housing starts, building permits, existing home sales, leading indicators, durable goods, personal income/spending, consumer sentiment and Q3 GDP was finalized at 3.4%. The ECRI was unchanged at -3.9%. Next week’s reports will be highlighted by the Chicago PMI and housing. Merry Christmas!
LONG TERM: downtrend probable
If anyone was questioning this bear market, it certainly has made its presence known these past three weeks: -12.4%. In fact, CNBC has been touting this December as the worse one since 1931. We checked, that one was the DOW was down 17.0%. The DOW is currently down 12.1% for the month. Of the seven major US indices we track, excluding the SPX sectors, only the volatile R2K has confirmed a bear market. As of Friday it has already lost 26%. The other six are all close. The NYSE, which we carry as an international index, has also confirmed a bear market. It is down 19.2%. It joins Australia, Canada, China, France, Germany, Greece, Spain, and S. Korea. Which are also in confirmed bear markets.
The long term count posted on the weekly chart remains unchanged. A Primary I bull market from 2009 completed in 2015. Then a Primary II bear market ended in 2016. The recent bull market, 2016-2018, was Major wave 1 of Primary III. This bear market is Major wave 2. There are three Fibonacci retracement levels that should provide support for Major wave 2: (38.2%) 2509, (50.0%) 2376, and (61.8%) 2242. Obviously the first one did not hold. Our worse case support has been around SPX 2400, which is also close to the 50% retracement, and the 2385 pivot.
MEDIUM TERM: downtrend
We are still counting this downtrend as a large double zigzag. A Minor A zigzag from SPX 2941-2604. Then a Minor B rally to SPX 2815. Then a Minor C zigzag down to SPX 2409 thus far. At first we thought SPX 2478 could hold (C = A). But it failed on Thursday. The next two Fibonacci supports are SPX 2309 (C = 1.5A), and SPX 2270 (C = 1.62 A). Lots of Fibonacci support levels between the bull market retracement and the C wave relationship: 2376, 2309, 2270, and 2242.
Technically, most of the RSI and MACD indicators have not been very useful in this avalanche of selling. We had thought that the “Tariff Man” comment could lead to a mini-crash. Guess this week was it. Currently, the daily MACD/RSI are both extremely oversold. The weekly RSI has a positive divergence, which usually ends downtrends during bear markets. The monthly RSI is now as oversold as it was during the 2015/2016 bear market. When markets are this one-sided to the downside it usually takes an “event” to reverse them.
Trying to track the short term waves during this downtrend has been a nightmare. Fifty, sixty point rallies followed by one hundred point declines have occurred on a regular basis. We even had a 100 point decline this week that took only an hour after the FOMC statement. The SPX/DOW and NDX/NAZ have all wiped out their entire 2018 gains in just two months.
Nevertheless, there are additional potential supports at the previous downtrend lows of this bull market: SPX 2408 Minute ii, and SPX 2322 Minor 4. Add them in to the previous four potential supports and we have: 2408, 2376, 2322, 2309, 2270, and 2242. The market hit SPX 2409 on Friday. Best to your trading!
Asian markets were all lower and lost 1.8% for the week.
European markets were all lower and lost 3.7% for the week.
The DJ World index lost 5.2%, and the NYSE lost 6.1%.
Bonds remain in an uptrend and gained 0.5% on the week.
Crude remains in a downtrend and lost 12.0% this week.
Gold is still in an uptrend and gained 1.4%.
The USD is now in a downtrend and lost 0.5%.
Tuesday: Christmas holiday. Wednesday: Case-Shiller. Thursday: jobless claims, consumer confidence, and new home sales. Friday: the Chicago PMI and pending home sales. Best to your week!