Weekend Update

REVIEW

The week started at SPX 2532. After a small pullback to the SPX 2525 pivot early Monday it rallied to SPX 2580 early Tuesday. Then after a Tuesday pullback to SPX 2548 it rallied to SPX 2598 by Thursday. Friday was the second straight gap down opening, and just like Thursday it had minimal impact on the close. For the week the SPX/DOW gained 2.5%, and the NDX/NAZ gained 2.5%. Economic reports for the week were sparse due to the government shutdown. On the downtick: the CPI, ISM services and consumer credit. On the uptick: weekly jobless claims improved. Next week’s reports will be highlighted by industrial production, retail sales, and the NY/Philly FED. The ECRI has now declined to 2011 levels.

LONG TERM: downtrend probable

The foreign markets, as we noted on December 29th, have been displaying signs of improvement after entering what appears to be their last bear market downtrend. While Germany and Spain have rallied a little off their late December lows. The Asian markets are doing a lot better. Hong Kong and the Kospi both appear to be in an uptrend, and Singapore has already confirmed its uptrend. China has had a small rally off its January low. Elsewhere, Brazil continues to make new bull market highs.

On the home front. Nothing has changed in the long term count for the US major indices. A Primary I bull market ran from 2009-2015. Primary II lasted 9 months but did little damage ending in February 2016. Major 1 of Primary III rose from that low to September – October 2018. A Major 2 bear market, having dropped 20% already, has been underway since then. When it concludes, if it hasn’t already, an Intermediate I bull market will be underway. Intermediate I, of Major 3, of Primary III.

MEDIUM TERM: downtrend

After the bull market high in October 2018 at SPX 2941 the market headed into a bear market. The decline appeared ordinary until December. Then the market went into avalanche mode. Was it the POTUS I’m the Tariff Man tweet? The market dropped from SPX 2800 to SPX 2347 by Christmas, a 16.2% decline, for the worse December since the year 1931. After that the market reversed and changed characteristics. While nearly every rally was sold in December, nearly every decline is currently being bought. The SPX in 12 trading days has rallied from 2347 to 2598, a 10.7% gain. Was it the POTUS Stocks are Cheap tweet?

While all this was going on we were doing some research into historical market activity that is similar to this. We found five events, not much, since, and including the 1987 crash. In every one of the five instances the market rallied between 7.5% to 13% after the significant low. In four of the five instances, when the rally concluded, the market retested the lows. The one exception still had a 61.8% pullback, before moving higher. The pivots highlighted in green 2632 and 2656 are the 12% and 13% levels.

We also looked into momentum measures. This data is only available since the turn of this century. And there are only three instances. In each of the three instances momentum rose 20% to 25% before the market reversed and went back to retest the lows. It is currently up 17%. The chart for this is located on page 17 of the charts. Probabilities suggest a decline soon that mostly likely retests the lows.

SHORT TERM

During the bull market it was fairly easy to track the five wave movements as volatility was low and the rise was generally slow. With volatility still high it has been somewhat difficult to track the smaller waves with our normal approach. With this in mind we all have been working to quantify short term waves just on price alone.

There are a few potential counts floating around in our group. Nearly all are corrective. The approach I am using displays 5 impulsive waves up (SPX 2347-2520), a choppy pullback to SPX 2444, then 5 overlapping waves (possibly an expanding diagonal) to SPX 2598. Waiting to see how this unfolds in the days ahead. Short term support is at the 2594 and 2575 pivots, with resistance at the 2632 and 2656 pivots. Short term momentum ended the week above neutral. Best to your trading Opex week!

FOREIGN MARKETS

Asian markets were all higher on the week and gained 3.0%.

European markets were all higher and gained 1.9%.

The DJ World index gained 3.0%, and the NYSE gained 2.7%.

COMMODITIES

Bonds continue to uptrend but lost 0.3% on the week.

Crude continues to look like it is in an uptrend and gained 7.6% on the week.

Gold is in an uptrend and gained 0.3%.

The USD is in a downtrend and lost 0.5%

Bitcoin is in a downtrend and lost 2.8%.

NEXT WEEK

Tuesday: the PPI and NY FED. Wednesday: retail sales, export/import prices, business inventories and the NAHB. Thursday: jobless claims, housing starts, building permits, and the Philly FED. Options expiration Friday: industrial production, capacity utilization, and consumer sentiment. Best to your week!

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

About tony caldaro

Investor
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535 Responses to Weekend Update

  1. manunidhi21 says:

    Namaste Tony,

    Even if it was 20 % correction it dit not feel that it reflected on the economy.

    May be it was fast and short.
    Any takes on it including Tony with some historical data.

  2. Twosidedtape1 says:

    I’m not sure if the bear market is over or not, but honestly a rise straight up after a major market correction of this magnitude without a retest of lows is nearly unheard of historically. I’ve been looking at dozens of historical chart and a retest is a very high probability trade. It happens something like 90+% of the time. The key thing to think about though is the retest very often doesn’t make it all the way to lows. Whether it does or not will tell us if the move back down was a C wave or a Wave 2. It’s not really possible as far as I can tell to know which you’ll get until it’s over, but the odds of no attempt at a retest at all are not good, and you can bet that the big traders with all their researchers know that. The really good trade is buying the retest after it’s over.

  3. SPX….looking for a 2346 retest of that low.

  4. xEVAx says:

    SUPER BULL, until proven wrong .)

  5. aahmichael says:

    FWIW, I’m favoring the count down from 2941 as abc to 2604, x to 2800, a to 2347, b either finished today or is close to finishing, and then wave c will go to new lows. At this point, c will equal the previous wave a at 2172. The 2800-2347 decline was 15 days, and 13 of those days were red candles. Today marked 15 days up from the lows, and 13 of those days were green candles.

    • Yes, lower. but I’d say strong double bottom.
      Crash is finished.

      • fionamargaret says:

        Tom, under what scenario (if there is one) would the indices suggest higher, along with yields going lower?
        I am just entertaining my numbers….

        • I am saying a retest of the lows for equities seems the next move.
          As others have noted, the CBs were likely the massive buyers for the Dec low, and they will be happy to get a trading range for stocks for the next many months. ~2350 – ~ 2900 spx.
          A full blown crash to 1800 would require a catalyst, (e.g. somebody’s collateral imploding) and I’m not seeing it.
          Treasuries above 3.10% could be a catalyst for a crash, but bonds seem pretty tame now..

          • fionamargaret says:

            Thanks Tom, but the question I have is…. if my numbers suggest $SPX 2903, and TLT suggests higher ($TNX lower), what conditions would be required to create such….

  6. fwiw… bearish candlesticks (daily) in SPY & QQQ created with the close on the lows

  7. Holy Cow! What a run! It’s beauuuutiful!

  8. Dex T says:

    mgmcapital,

    So May survived the no-confidence vote but it seems that further talks are pointless.

    “No-deal means there would be no transition so the exit would be abrupt, the nightmare scenario for international businesses and the dream of hard Brexiteers who want a decisive split.

    Britain is a member of the World Trade Organization so tariffs and other terms governing its trade with the EU would be set under WTO rules.”

    https://www.yahoo.com/news/brexit-where-uk-end-fudge-no-deal-exit-150036200.html

    • mcgcapital says:

      Yeah.. it’s such a tedious process and is dominating everything over here. So now she will try and negotiate with the opposition to find out what they want to be able to back it. Then back to the E.U. who will say no to the amendments requested. And on and on it goes. Eventually, there will be a realisation that there is no majority for anything in parliament. Then you’re left with a second vote, which probably would get a majority in the house if all else has been tried, or the possibility that the Tory rebels who want a hard Brexit decide they’d rather have the deal on the table over the possibility of no Brexit at all, which seems odds on if there’s a second vote. Will rumble on a while this.. don’t really see it affecting markets unless there’s a so called no deal.. but nearly all of them don’t want that so it won’t be allowed to happen

      • Slapdash says:

        That is a monunentally cynical point of view from this small island.

        But sadly exactly the situation.

        • fionamargaret says:

          Tell me again the reasons why we cannot have another referendum?
          Surely this is a circle game until we do…

          • Slapdash says:

            Cannot? None.

            Should not ? Many. The main one – to me – a question was asked. Leave yes or no. (I said no). The question wasn’t “yes but ….”

            If (or as seems increasingly likely when) we get asked another question I am not against that. But none of the answers should be “remain”. That question – though badly asked -was answered.

            • mcgcapital says:

              The problem with it all is that there was no thought put into what leave would look like because they believed remain would walk it. I voted yes, I’m probably closer aligned to the ERG than i am to the moderate side of the tories but I’m that fed up with it that i’d be inclined to vote no as it’s just not worth the hassle now. The point is, we can have another referendum but it would mean that you make a large number of the population lose faith in parliament. After the vote, there was an opportunity to make this work in a way that would have been long term positive for the country but that’s gone now. So many politicians on all sides have frustrated the process to the point that we’re left with a new vote as the only option… and they know remain are likely to win because people have had enough of hearing about it and it’s the only way to make it go away overnight. I.e. it feels like this situation has been engineered to get the outcome they wanted rather than being at all democratic

            • fionamargaret says:

              …your answer was perfection…you are in the right field, yes….x

  9. Dex T says:

    Gymboree eyes bankruptcy, closing up to 900 stores

    “Gymboree Corp. is expected to file for bankruptcy protection this week and could close many of its 900 stores, according to multiple published reports.”

    https://www.bizjournals.com/birmingham/news/2019/01/15/gymboree-eyes-bankruptcy-closing-up-to-900-stores.html

  10. jobjas says:

    SPX next drop to 2200

  11. best bear count i can see is by Soul Surfer. which I happen to agree with. A of B ending anytime and as high as 2641. then down to 2500 area then up to 2775. So a drop from here and buy the dips
    then my opinion from 2775 C down equals A at 2180 in May.
    So im still thinking this is the top of a with 13 waves up and we drop but its only a of B.
    Good luck all

  12. lml25 says:

    Right to where The big drop started–the neck of the H&S.Mnuchin push needed.

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