Weekend update

REVIEW

The week started at SPX 2596. After a gap down opening on Monday to SPX 2570 the market rallied to SPX 2589. Tuesday and Wednesday the rally continued to SPX 2626. Another gap down opening on Thursday dropped the SPX to 2606 at the open. But then the market reversed, and rallied to SPX 2675 by Friday. For the week the SPX/DOW gained 2.95%, and the NDX/NAZ gained 2.75%. Economic reports for the week were mixed. On the downtick: the PPI, NY FED, import prices, and consumer sentiment. On the uptick: the NAHB, Philly FED, industrial production, capacity utilization, plus jobless claims improved. Next week’s reports will be highlighted by durable goods orders and housing. The ECRI ticked up 0.3% this week from -6.5% to -6.2%.

LONG TERM: uptrend 60% probability

After writing this blog for over 13 years, and reading over 200 emails a day, it is often hard to remember who said what and when, including oneself. That’s why I keep notes. My notes. Week of Sept 17th: mentioned after two year bull run it was time to get cautious. Scale out during bull market tops, and scale in during bear market bottoms came next. Week of October 22nd: consistent weakness in most of the foreign markets, with Canada, China, Germany and Spain already in confirmed bear markets. Week of November 26th: after a bear market rally many US indices looked ready to enter the next downtrend. Week of December 3rd: after the POTUS Tariff Man tweet sensed a potential mini-crash. Week of December 17th: the market needed some sort of event to halt the decline, i.e a PWG event. Week of December 24th: many of the foreign markets appeared to be in their last downtrend of their bear markets. This week: we offered on Wednesday, and will repeat below, the five criteria to help in determining the probabilities of the market retesting the December lows or already in a new bull market.

The long term count remains unchanged with the exception of the recent low around Christmas. Primary I unfolded from 2009-2015. Primary II was a moderate bear market from 2015-2016. Major wave 1 of Primary III advanced from 2016-2018. And now probabilities suggest a Major 2 bear market lasted from September/October until December of 2018. If this works out to be correct an Intermediate I, of Major wave 3, bull market should be underway.

MEDIUM TERM: uptrend 60% probability

In Wednesday’s update we published the following. We’re using five criteria to hopefully determine if the market will still retest the low to end Major 2, or the bear market has already ended. The criteria are: the size of rally, NDX/NAZ and SPX/DOW wave patterns, rebound percentage from the low, and breadth rise from the low.

First, this rally is the largest rally since the bear market began: a positive. Second, the NDX/NAZ look like they have done five waves up from the Christmas low: another positive. Third, the SPX/DOW look like they have done three waves up from the low: a negative so far. Fourth, the largest rebound for B waves, under similar conditions, in the past three decades has been 13%. The rally reached 14% on Friday: turning this positive. Fifth, the maximum percentage rise in breath for a B wave has been 26%. Thus far breadth has risen 24%: a negative.

Since the market now has reached three of the five criteria this would raises the probabilities in favor a new bull market to 60%. A fourth positive would increase those probabilities, and a fifth would almost assure them.

SHORT TERM

Quite a strong rally from the Christmas low. We can clearly see five waves up on the NDX/NAZ charts. But the SPX/DOW charts still look like three waves. The first two waves we have noted in previous updates [2347] 2520-2444. Last week we noted a lot of rising but choppy activity, and thought a possible ending diagonal was forming. That idea was blown away this week, especially in the latter part. That rising choppy activity now looks like a series of 1-2’s before the SPX 2570 low.

Looking ahead we see a wave 1 (2347-2520), a wave 2 (2520-2444), and a wave 3 underway (2444-2675). Currently wave 3 is 1.34% wave 1. At SPX 2704 wave 3 would equal 1.5 wave 1, and at SPX 2724 wave 3 would equal 1.62% wave 1. There is also an unlikely wave 3 double wave 1 at SPX 2790. With wave 3 starting off with a choppy rising series of 1-2’s, it is likely to end with a choppy rising series of 4-5’s. Then after a significant decline for the wave iv of this rally, a push to higher highs should follow. Short term support is at SPX 2656 and 2632, with resistance at SPX 2731 and 2780. Short term momentum hit its highest level since July 2018. Enjoy the three day weekend!

FOREIGN MARKETS

Asian markets were all higher on the week and gained 1.7%.

European markets were mostly higher and gained 1.3%.

The DJ World index gained 2.1%, and the NYSE gained 2.6%.

COMMODITIES

Bonds appear to be in a new downtrend and lost 0.8% on the week.

Crude is in a new uptrend and gained 4.8% on the week.

Gold is still in an uptrend but lost 0.5%.

The USD is in a downtrend but gained 0.8%.

Bitcoin remains in a downtrend and lost 1.0%.

NEXT WEEK

Monday: MLK holiday. Tuesday: existing home sales. Thursday: weekly jobless claims and leading indicators. Friday: durable goods and new home sales.

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

About tony caldaro

Investor
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564 Responses to Weekend update

  1. Here is something to watch out for….

    Correlations across assets have hit their highest level in almost a year, with the S&P 500, the 10-year U.S. Treasury yield and U.S. crude oil moving in tandem in nine of the last 12 sessions. A six-day run of declines for the asset classes earlier this month was the longest streak since June.

    The rolling correlations between the S&P 500 and the S&P GSCI commodities index, 10 Year Treasury Yield, and the MSCI All Country World Index (ex U.S.) have all stayed at or above 0.8 in recent weeks for the first time since early last year, when analyzing 50-day periods.

    This is analogous to what happened in 2015 and 2016.

    The risk being that all of your market positions become the same trade.
    That’s not going to work real well on the downside.

    Like

  2. Here is something to watch out for….

    Correlations across assets have hit their highest level in almost a year, with the S&P 500, the 10-year U.S. Treasury yield and U.S. crude oil moving in tandem in nine of the last 12 sessions. A six-day run of declines for the asset classes earlier this month was the longest streak since June.

    The rolling correlations between the S&P 500 and the S&P GSCI commodities index, 10 Year Treasury Yield, and the MSCI All Country World Index (ex U.S.) have all stayed at or above 0.8 in recent weeks for the first time since early last year, when analyzing 50-day periods.

    This is analogous to what happened in 2015 and 2016.

    The risk being that all of your market positions become the same trade. That’s not going to work real well on the downside.

    Like

  3. elmer510 says:

    We now see a fourth wave from 2347. Question is what kind of wave – minute or minor?
    If we see 2700+ after the fith wave, I guess Intermediate 1 would be a good suggestion cause it’s above 10-11% increase. The current waves should then be Minor 1-5.

    Like

  4. lml25 says:

    Another sign of a looming drop by equities–VIX slow stochastics have gone above 20.Lost the embedded.Could regain it with a big drop by VIX but a first warning signal.

    Like

    • lml25 says:

      Here’s the way stochs are setting up.If PPT can push equities up today and keep VIX bearishly embedded,a stock rally is very likely from here.VIX stays above 20 through today (and tomorrow)a selloff is on the way (or has started).PPT sees this–if I do–and whatever they have up their sleeves will happen by tomorrow at 4pm.Also staying below 2635 is bearish.That’s all from me.

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    • lml25…..just back from working out. /VX is testing it’s 50% LONG at $19.92, the 61.8% LONG is $19.64. If /VX defends the 50% long and rallies, equities are going lower. If /VX drops below $19.64 equities will rally.
      Bottom line /VX $19.64…bearish above for equities and bullish below for equities.

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  5. EXAS +5% to $80 and traded as high as $81.00 on no news.
    +31% since Xmas Eve.
    🙂

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  6. Jack kendo says:

    + div @2612.86

    cheers!

    Like

  7. Smooth draw down today is NOT indicative of the start of something big. But once it breaks 2600 watch out! here is my silly take on why this market is doomed till trump leaves office. Not only will we see additional tariffs on China and executive order destroying China’s telecommunication companies Trump will move right back to his pledge to build the WALL against all other auto makers. He will attack the EU, Canada and any other nation involved in steel imports. he will get a very quick response from the EU. All this is a promise for March at the latest. So tell me folks how in the world do we rally from here with all that happening?

    Watch the tweets and watch SPX 2600 area. Just think a few days ago it was to the moon…. Schizoid market and investors. I will guarantee as i have two other times that the coming events are market breakers. Democrats are fully engaged to catch up to all the illegal and criminal shenanigans this GOP allowed for 2 years. Cleaning this swamp will take decades. The revelations from the Dems and Mueller along with the destructive power of Trump make it totally impossible for this market to gain traction. i mean 100 percent impossible.

    One more fact: You have not seen anything yet! New lows is a guarantee! Especially as the two men, Trump and McConnell control our fate. If you think this winter is cold and nasty there will be no thaw this spring (assuming our fearless leader is still in charge).

    Immediate take: 70/30 assumption the first drop holds at 2600 and a subsequent rebound occurs. the market behavior is too well controlled today. How high is not the question but how long is. Should not last more than 5 days.

    Like

    • Trying to match the charts against reality is a futile exercise and everyone here knows it. The ability of EW Charting to approve all 10,000 alternative paths is a given. the rules of EW is so complex that virtually any situation can be justified. I keep bringing this up because not a single person has kept track of the EW assumptions and how well it did for profitable trading. in the abstract all EW charts are perfect as they adjust their counts and change the path going forward. Translate it to profits and it gets an “F”.

      I propose a paper exercise in placing bets according to current charts. Sell or add bets as the charts dictate. Anyone want to give it a try? I find it peculiar how common sense approaches to determining the worth of a system is always ignored. it’s as if we don’t want to know the truth since it will not allow you to follow a path predetermined. Going it alone is much too scary. I acknowledge that intra-day Fibonacci targets are much better in accuracy BUT to make money is another matter since the changes can happen too fast.

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    • tommyboys says:

      Ha! Ironically market is only up BECAUSE Trump is in office. God forbid crooked hilary got in. We’d be a Dow 6k. We all remember your end of the world calls “if Trump got in” election night. Check your TDS dude or ignore it and trade the charts.

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  8. phil1247 says:

    travis

    what are your plans when we get to 2602 es ?

    Like

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