Weekend update

REVIEW

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.

SHORT TERM

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!

FOREIGN MARKETS

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%.

COMMODITIES

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%.

NEXT WEEK

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!

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

About tony caldaro

Investor
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854 Responses to Weekend update

  1. Here’s my updated market breadth chart, now @ 15.80%

    10 year low for the SPXA200R, with the exception of one week in August 2011.
    (for the benefit of Mr. lunker, who does demand accuracy)
    ***NB. 5 period Weekly RSI setting up for a possible +DIV.
    Ya just don’t see that every day.

    Like

    • stockop says:

      You have been posting this chart for a couple months now and it has been amazingly accurate. The current levels seem to be reaching bottom level readings. What is your opinion on this?

      Like

  2. Menachem M. Uzan says:

    Reading the comments this weekend, besides the pleasant holiday greetings, is depressing. IMVHO I think we would have crashed by now. Two observations I noticed by this particular precipitous decline we have had this past week. 1. It was very fast, deliberate and caused what it intended, namely, great fear. 2. We closed on Friday before the weekend pause at SPX 2417 just above SPX 2409 pivot. This weekend we have time to reflect on what has transpired. This decline is over. It appears we have a buying opportunity that comes once in a great while. Valuations are attractive. Money is cheap. Employment is good. Fear is at extremes. I think when people will catch on to this it could be a sharp rise.

    P.S. When Nike goes up on a day like Friday its a sign that the bulls are going to run so you better put on your shoes and be ready. Think good and it will be good

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  3. mike7x says:

    Thanks Tony. Happy Holidays!

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  4. mcgcapital says:

    I’ve been reading widely today and analysing charts, and I’ve decided to become bullish in the short term. No change to any of my longer term views or fundamental analysis, so therefore still think the ultimate low is much lower and takes much longer timewise.

    Firstly I’ll start by saying that over the summer, all of the liquidity was being concentrated into the US, hence the US markets were rising whilst everything else had already started to fall. That was a clear warning signal that that rally was going to be difficult to sustain, and the choppy price action supported it. As soon as the run of higher lows ended at SPX 2860s, the market rolled over hard.

    Now it’s kind of the opposite. The US is falling the most here and by some margin, institutional have gone from heavily overweight to underweight. December to date, SPX is down 13.5%, whilst FTSE and Dax are down 6.3% and 8.2%. Since the Fed meeting high on Wednesday, SPX dropped 6.5%, FTSE 2.2% and Dax 2.8%. It’s a similar story in Asia and EM. It’s almost impossible for any risk assets to rally when the US market gets slammed so hard, but the fact that other markets are falling much less suggests that global breadth could be on the verge of improving.

    I’d also say that the month end rebalancing amongst other things is likely to provide some liquidity into month end. I’d favour a pop to relieve oversold conditions, which people probably label a wave 4, then fresh lows in January probably to test the 100 week MA around 2350. That would coincide with a 20% drop from the high, which is where the last 2 bear markets bottomed for the first leg. And I think there’s a reason for that.. most of the lemmings don’t believe it’s a bear market when it’s in the early stages. Once you break the 10-15% down barrier, suddenly everyone believes.. and that’s what we see now that 2530-2600 has given way. Bear markets are a process, it’s not going to drop 50% in a straight line (if it does its not tradable). You can expect some sort of more durable counter rally once you get to 20% down as that’s when people say ‘is the economy actually that bad’ ‘markets are cheaper now than they were a few months ago’ etc. That’s when it bounces more, and when that bounce fails because we get more confirmation that yes things are bad, that’s when it drops more.

    FTSE specifically, there are a couple of things. I always watch the closing auction between 4:30 and 4:35 for clues. Usually it doesn’t move much, but when it does it often signifies a change in sentiment from institutional. On the day we hit 7900 in May, the closing auction sold off hard, never closed the gap the next day, then rolled over and here we are at 6640. On the day we bottomed for 6 weeks or so in late October at 6850, the closing auction saw massive buying. And similarly a couple of weeks ago when we hit 6670, there was huge buying in the auction and we then bounced to 6900 over the coming days. Both of those times though we saw the auction rally, then an after hours pullback to a higher low, then rally again. Friday we got a massive auction rally, but then got overwhelmed by the US selling post close and it fell to fresh lows. So that does give me less confidence it will work, but it’s there. I’d also say that FTSE has been down 8 months this year. January and August closed near the lows, but that’s because they topped out the week before and the last week of the month was down. The other 6 bounced into month end, and all by 2% or more off the lows.

    To counter all of this, the run of the markets rallying early then selling off hard to fresh lows needs to stop for there to be any kind of rally. So it’s all subject to markets not breaking down again to fresh lows on Monday which could well happen. However if it doesn’t, I think the conditions are there for a counter rally.

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    • mcgcapital says:

      And one final point.. people say that the market doesn’t bottom on a Friday, but it’s happened twice this year. In late March, where European markets made their lows, and at thanksgiving where we rallied everyday the week after. Could imagine this week being the same especially with it being Xmas

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      • fionamargaret says:

        Nice McG, now here is my scenario…
        The data has the $SPX going to 1971,…. but think we get a bounce, then a washout …and then up…….

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        • kvilia says:

          Great minds think alike, Fiona 🙂

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        • fenster6 says:

          McG

          So do you see a final 50% correction from the highs?

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        • Jack kendo says:

          Fiona, perfect storm, perfect scenario would be Black Monday, Christmas eve.
          Level 3 of 20% with circuit breaker is at SPX 1930.

          How:
          Cr. Jeff Saut @ Raymond James:
          “Selling into a vacuum:of NO BUYERS” 🙂

          cheers!

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          • Jack kendo says:

            Gov shutdown: PPT at recess, and is on holiday break – free fall, no savers.
            Perfect timing, perfect storm.

            cheers!

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          • kvilia says:

            I want to have what you are smoking, Jack.

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          • Anthony Saraniti says:

            I received an email from McHugh this morning. His proprietary indicator on the PPT, which is an accurate indicator just flipped to “ON.” The FOMC could intervene to support the equity market. Would not be surprised to see either a controlled decline or a counter trend rally develope. This is just an observation at this point.

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        • daisysdad says:

          Hi Fiona, sorry if you already posted this but could you tell me what your “roadmap” is to 1971 etc? Where do you see the first bounce coming from (2900? Lower?) and how high will it go? Is the “washout” where you see 1971? Where is the “up” after that going to take us? Best to you and yours!

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          • daisysdad says:

            Meant 2400 not 2900

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          • fionamargaret says:

            …the bounce and washout are hypothetical..
            The data (all things being equal) as of today are as follows..
            $SPX to 1971, QQQ to 141, DIA to 189, SMH to 75, $WTIC (oil) to 34, TLT to 143
            Normally I would say 1971 after the supposed washout…it is usually a longer term number, but momentum such as it is makes the numbers much more subject to change.

            Merry Christmas Daisysdad…x

            Like

    • stockop says:

      Great post mcg. The corollary to the “markets don’t bottom on Fridays” is “markets usually don’t bottom on a Friday”. I learned this the hard way a while back and came across the more accurate version after the fact.

      I agree with your market view over the next few months. I’ve got this quote from a guy named Bob Farrell (no idea who the guy is just giving credit where credit is due) that seems to be accurate based on what I can tell of the past based on charts.”Bear markets have three-stages – i)sharp down, ii)reflexive rebound, and iii) a drawn-out fundamental downtrend.” Similar to what you were saying last week in that you didn’t see a reason for buyers to step in, I don’t see a reason for sellers at a crash level to step in. While their is weakening in the data and the chance of a potential black swan, I do not see anything currently on the horizon that could lead to a legitimate panic overnight.

      What is this closing auction you speak of? I don’t know if I am just unfamiliar with the terminology or if it is European only.

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  5. 123 abc says:

    DOW: An interpretation of OEW Major-2 bear market as a 3-3-5 correction…

    DOW: An interpretation of popular traditional EW models…

    BTC: Bitfinex support zones: 3270, 2650, 2150, 1650, 950…

    Like

    • fenster6 says:

      You have been nailing it abc

      Like

    • sixpack says:

      123 abc, that is an awesome analysis of the market. Many of the industrial stocks and financials show this very same topping pattern (FDX, MMM, USB, etc).

      This analysis would suggest that this bear market is a Cycle Wave 2. Am I reading that correctly? Would appreciate your thoughts.

      Thank you

      Like

      • 123 abc says:

        Correct, the popular and traditional EW interpretations would suggest at least a 40% bear market labelled as Cycle-2 wave, some even suggest larger degree.

        Interestingly, a 40% pullback would end above the 2016 lows which would probably still be in the bounds of OEW Major-2 wave, and yet satisfy traditional EW Cycle-2 wave —thereby not invalidating a particular school of EW….! 😉

        Like

        • tony caldaro says:

          interesting point
          the last P3 … 1982-2000 included the 1987 crash =)

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        • mcgcapital says:

          40% down from 2940 is 1764 which overlaps 1810

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        • sixpack says:

          Ya, that is a really good point. Watching both EW and OEW makes sense. But, if it would happen to get that low, and effectively be an EW Cycle degree wave 2, for all practical purposes, that could be the last and best great long term buying opportunity in my career. A quick 1.618 X the length of Cycle Wave one and added onto DJIA 16,000 would put it close to 50,000. I might be dead by then, but it’s still nice to think about.

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  6. Jack kendo says:

    Tony Thanks
    Great work! oew does a fantastic work, scaling out early October at market top, and expecting a bear market thereafter. It’s perfect, what’s more can one ask for?

    I went back oew material to try to find some guidance.
    Highly recommend oew Lessons, it has treasure of everything you need!

    Lesson Five, I might find a good example (re-labeled a bit) as following.
    The pattern has striking similarity.
    Are these oew labels ok? (and can apply to SPX too).

    cheers!

    Like

  7. fenster6 says:

    Thanks Tony

    What worries me is this chart…

    The 100 year chart

    https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

    I am not a squiggle counter but it sure looks to me like we had a 4th wave of some sort. Is this a 5th wave?
    and with the tariff man, as you call him, having fired all the adults around him, we are left with an unpredictable child-man who could do a lot of damage!

    Hemorrhoid pops out one morning, reaches for the button…

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