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. bettyfreeman says:

    Hi Tony, thank you another very enlightening weekend summary. This is only my second comment in nearly 12 years of lurking. In fact, I have your original 1987 Barron’s article in my archives, brilliant work especially when one considers whose work you were attempting to prove wrong at that time. I have a question regarding your historical study with respects to declines/rallies and retests. Is in not important to stipulate whether the market was in a bear or bull market, the trend being down or up when drawing before drawing historical conclusions based on the data? Thank you.

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  2. STEPHEN BARTLETT says:

    I think we will get a contracting triangle into the end of March. This rally wave a. Wave a likely to end around 2650 area. Wave e will complete once we have touched the trend line of the speed of the advance from 1900 points projected forward from the lower high in the S&P that ended the bull mkt.

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  3. elmer510 says:

    Thanks to Tony !
    Interesting to see the probability is highest for a retest of December 24th at SPX.
    Bulls must be carefull.

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  4. nyjsec314 says:

    TC- thanks as always. From a strictly OEW inspired/performance driven point of view, with major III of P3 around the corner, would one be better being allocated state side or is there as much or greater potential in developed international? Thank you

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  5. manunidhi21 says:

    Namaste Tony.

    Above what level it will be clear that major 2 is in abv 2656 or 2731 ?

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    • SPX strong support has now become strong resistance at current levels. Cycles indicate a sharp turn down from +/-17th January 2019. Measured projections look like a +/- 30% drop from here.

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      • alexhartley1 says:

        I don’t know about the 30% drop Richard (I could certainly see another 10% from here and perhaps quite quickly into the 25th) but I certainly agree with you on the CIT date identified for the 17th. It comes at/towards the end of OPEX week as well which is one of the main reasons this market is holding up for now in my opinion. Bulls should watch out around Wed/Thurs.

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        • As I said on Wed. Update, the EOB on 17th is the end of the bi-monthly open range, in which the top, is downward of here by over 50 SPX points. IF open range holds, SPX should close on 17th at 2519.49, or lower. (I had the wrong figure on Wed. Update.) 2519.49 is the high of 1/2.

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    • tony caldaro says:

      2731 sounds good

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