Weekend Report

The Weekend Update

posted on March 16, 2019 by the OEW group in honor of Anthony Caldaro

Report

The SPX, NAS, and NDX all reversed last week’s losses of 2% and rallied to new recovery highs.  The Dow lagged and only recovered approximately 62% of last week’s losses.  The SPX gapped up to 2748 at Monday’s open and rallied to 2798 on Tuesday.  After a short-lived pullback to 2788 into the close on Tuesday, price continued higher to 2821 on Wednesday.  A late day sell off on Wednesday was followed by more weakness to 2803 on Thursday morning.  Price remained in a range for the rest of Thursday and then gapped up again on Friday and rallied to the week’s high of 2831 and closed at 2822.

For the often volatile Options Expiration week, the SPX gained 2.9%, the NAS/NDX gained 3.9%, while the Dow gained 1.6%.

On the economic front, we saw an uptick in retail sales, NFIB Small Business Optimism, CPI, PPI, construction spending, industrial production, University of Michigan Consumer Sentiment, and JOLTs job openings.  On the downtick:  core CPI and core PPI, durable goods, new home sales, Empire State Manufacturing Index, and capacity utilization.

Next week’s report will highlight NAHB Housing Market Index, factory orders, the FOMC rate decision, the Philadelphia Fed Index, Leading Indicators, and existing home sales.

The ECRI WLI continues to improve and rose this week from -3.7 to -2.9.

1ECRI

LONG TERM: Uptrend

We continue to track the foreign markets as we have for the past several months.  All of the foreign indices we track were positive for the week.  The Indian Nifty 50 up 3.6%, the German DAX up 1.8%, the French CAC 40 up 3.3%, the Brazilian BVSP up 3.8%, the Japanese Nikkei 225 up 3.6%, the Shanghai Stock Exchange (SSEC) up 2.7%, the Hang Seng Stock Exchange up 2.8%, and the South Korean KOSPI up 1.9%.

spxweekly

In the US, the long-term count remains unchanged. Super cycle SC2 low March 2009. Primary I high May 2015, and Primary II low February 2016. Major wave 1 high October 2018, Major wave 2 low December 2018. Intermediate wave i of Major 3 is now underway.

MEDIUM TERM: Uptrend, possible near-term weakness

We count a five wave impulsive rally from the Major 2 low at SPX 2347.  Minute i at 2520, Minute ii at 2444, Minute iii at 2739, Minute iv at 2682 and Minute v at 2817.  We tentatively labeled the 2817 high as Minor 1 on last weekend’s report, thus we were expecting a correction for Minor 2.  Indeed, the SPX/Dow broke support levels and fell 3+% in a three wave move during the correction.   From the 2722 low, SPX has risen to 2831 while the Dow has not reached new recovery highs.  This divergence among the indexes tells us to be conservative in our market view and consider that a complex Minor 2 correction may still be underway.  This conservative market view is shown on the Dow chart below and will remain our primary count awaiting further price action.

INDUdaily

We continue to track the more near-term bullish count, shown on the daily SPX chart below, with the Minor 1 top at 2817 and Minor 2 bottom at 2722.  This count suggests Minor 3 is currently underway.  See additional comments in the short-term section regarding these wave counts.

SPXdaily

SHORT TERM

From the Minor 1 high at 2817 we saw a three wave decline to the SPX 2722 low (2768>2796>2722).  We expected that low to be the minute a wave which would be followed by a minute b retracement rally and another decline in minute c to end Minor 2.  Instead the SPX has rallied in one wave from 2722 to the week’s high at 2831.

The SPX rally could be part of an irregular b wave with a wave c decline to follow.  If this view is correct, the Dow price should fall below last week’s low.  The SPX and Dow will likely realign during this correction.  If the Dow rallies to new highs before declining below last week’s lows, this count will be eliminated.  Also, if the SPX rises over 2876, this count will be dropped.

The strength in the SPX and NAS/NDX indices also suggest near-term bullish wave counts.  These include 1) Minor 2 is complete at SPX 2722 with Minor 3 underway which will likely subdivide as well (shown above on the SPX daily chart), and 2) The impulsive rally from SPX 2347 continues with an additional extension of the Minute v wave into Micro waves (shown below on the 60 minute chart).  Clearly, we will need to see the Dow rally to new highs for these bullish counts.

SPXhourly

We will track all of these most probable wave counts.  From time to time, the market action causes uncertainty as to the next move.  Patience is required during these times to allow the markets to remove that uncertainty.

Short term support is at the 2798, 2780, and 2731 pivots and resistance at the 2835 and 2858 pivots.  The SPX continues to display a negative divergence on the 60 minute chart.  The RSI 5 on the daily chart does not show a divergence although it is now overbought.

FOREIGN MARKETS

Asian markets were up 2-3%.

European markets were up 1.5-3.0%.

The DJ World index gained 2.7%, and the NYSE gained 2.4%.

COMMODITIES

Bonds are in a downtrend but lost 1.2%.

Crude remains in an uptrend and gained 4.5%.

Gold is in a downtrend but gained 0.5%.

Bitcoin is in a downtrend and lost 3.7%.

The USD is in an uptrend but lost 1.0%.

Best wishes to all

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663 Responses to Weekend Report

  1. it is extremely unlikely that it is an “irregular b wave” part of an extended flat- i could count 5 waves up from 2722, and a flat is 3-3-5 with b wave having 3 waves and not 5.

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  2. M Wags says:

    $14.2 Billion flowed into stock funds last week, including $12.2 Billion on Tuesday, the most since Sept. 18th, the SPX peak.

    Domestic inflows no at a 1 year high at $25 Billion.

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  3. I notice that along with stocks having a good week, the 1 Month Treasury (yield) had a good week.

    Problem is, the one month Treas. has been having a good week for quite some time Like this

    And, when you look at it compared to other rates, that is not good that 1 month is so strong.

    They are all converging.

    this stock market is going up gangbusters for almost four months.
    Great, for the longs (not me now)
    But to say this is the continuation of a secular Bull Market seems folly.
    I see the walls closing in.
    IMHO

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    • M Wags says:

      Tom, the rate on the 1 month T-Bill is basically dictated by the FED and the Fed Funds range. It’s right where it should be.

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      • Right.
        But the question is, will Chairman Powell cave into political pressure, from the White House and blowhards like Jim Cramer, to lower rates.

        I think the fact that 1 month Treasuries rose this week mean Powell has a spine.
        He will not cut rates.

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        • M Wags says:

          I disagree.

          As of last Friday, the Fed Funds futures were pricing in nearly a 37% probability of a rate cut by next January.

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          • If Powell cuts rates here he will
            1) destroy the bond market, but making it impossible for anybody to ever make money in bonds
            2) set the stage for a very prolonged next recession, where the FED has few tools left in the toolbox.

            But you might be right here. Maybe he will cut.
            Everybody these days wants instant gratification, with no consideration for the longer term.

            Liked by 1 person

          • 1.) If Powell were to cut rates at some point this year, I don’t see how it would “destroy the bond market” . . . especially since any cut in rates would be associated with weaker economic data.

            2.) The FED already has few “tools” left in its tool box. And Congress and the Administration cant do anything from the fiscal side because they are already running $1.0 Trillion dollar budget deficits on an annual basis. This is Basic Econ 101A. The shock “absorbers” for the next Recession are literally gone.

            3.) The GDP “Sugar High” that came about with going into debt to the tune of $1.5 trillion in corporate tax cuts is over. So is the impact of the tax repatriation. Q1 GDP estimates by the NY Fed are at 1.37% while the Atlanta Fed’s GDP now is at 0.4%

            4.) While Non-Financial Corporate Debt as a percentage of GDP is not that accurate a metric (its at a record high, roughly 47%) – – – even if one were to look at comparing investment-grade net debt to EBITDA (which is a decent measure of cash flow), non-financial corporates look almost as leveraged as they have at any time since the Peak hit during the Dot-Com boom 2 decades ago. Excluding the tech sector (which enjoys borrowing against impressively high cash flows), corporate investment grade debt looks as though it is at a historic high.

            5.) Debt with AAA ratings has almost ceased to exist. The biggest increase in debt volume has clearly been via the lowest quality investment grade credits and in below-investment grade. It’s almost as though Corporate America is gaming the ratings agencies… by borrowing as much as they can, while not suffering a downgrade which would lead to higher borrowing costs.

            6.) Russell 2000 non-financial net-debt & EBITDA is so far ahead of actual cash flows its not even funny. Net debt is currently running at 4X EBITDA.

            7.) I’ve never believed the “Pie in The Sky” GDP claims by the Administration of 3.5% GDP primarily because companies just dont have any pricing power. They are so concerned with maintaining market-share, that they are unable to raise profits and as a result, must take a hit on margins . . . while worrying about using existing cash flow to pay debt service and increased wages. Brick and Mortar retailers vs Amazon is a prime example of this.

            8.) I’m probably in the MCG Camp, given that I dont see how the market heads into a Wave 3 type Bull Run to 3400, given that earnings and margins have already peaked.

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          • Mr. Blue,
            You are listing so many “trees”, you obviously do not see the forest.

            1) “any cut in rates would be associated with weaker economic data

            The Bond Market is simply and clearly an organized forum to rent out your unused money. This activity is completely analogous to 1) renting out a car 2) renting out a heavy machine (e.g. a bulldozer), 3) renting out a house. 4) etc.
            These activities are all supposed to proceed with the renting party making a profit.
            But now, in the case of renting money, the FED has decreed, you have to do it for free.

            Now, the FED IN 2019, this is an EMERGENCY, as it has been for the past 11 years.
            So, the people who rent out their money (instead of cars, bulldozers, or houses) are required to do it for free, and It’s all OK now.
            BTW, if you just wander down the the grocery story and try to buy a few apples, or 12 cans of Pepsi, you will see that real inflation is way over 5.00%. Perhaps closer to 10%.

            In summation, if he FED gives way to popular demand and starts cutting returns on bonds, we will create a truly moribund economy, because of the fecklessness of the FED.
            I don’t expect that as of today, but would not be shocked if they do that.

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          • M Wags says:

            How would any of your claims….result in “destroying the Bond market” ?

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          • Mr. Wags,
            Most of the bond market buyers are institutions who buy bonds because they are directed to buy bonds in their charter. It has been this way for a very long time.
            When it becomes abundantly clear that they can’t make money owning bonds, the charters will be changed, and it will stay that way for a very long time.

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          • Just to add …
            State and local pension are huge buyers of bonds (some exclusively buyers of bonds).
            One particular ramification of the FED’s zero or near zero interest rate policy is that these pension funds are woefully underfunded now. In other words hundreds of thousands or perhaps millions of municipal workers have underfunded retirements. This will cause massive civil strife. All done to continue levitating the stock market, which I think is done mostly to fund stock buybacks and grotesque retirements for officers of Publicly traded securities.

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  4. fbender7 says:

    Stellar work on the Weekend Update. Thank you to the OEW group and Christine for the fine production. No doubt Tony is proud.

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  5. Arthur Knopf says:

    SENTIMENT UPDATE: Stocks Soar and Boeing Crashes
    http://sentimentsignals.blogspot.com
    Many thanks for keeping up the good work.

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  6. JD C. says:

    Thank you Christine and OEW group for the updates. I do like the clean charts on the weekend updates. I know your father’s chart list could be overwhelming to update. Just a suggestion, just update spx, indu, and compq. Enough said, just appreciate you and the OEW group. Thanks.

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  7. garstall says:

    Thank you Christine and OEW team

    Liked by 1 person

  8. phil1247 says:

    FED reduces balance sheet straight down

    STOCKS continue to go straight up

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  9. Thanks!

    Like I wrote yesterday: “NDX/NAS/SPX making new uptrend highs. RUT/DJIA still severely lagging; certainly not a risk on rally. Now, who will pull who down or up? This tells us each index is in its own wave count and as usual a blanket approach is inappropriate. IMHO NDX/NAS are finishing a final 5th up, the SPX is completing an irregular b-wave (last week’s low SPX2722 was wave-a) and the RUT/DJIA are in more normal b-wave retraces. A move above SPX2855 proofs my thesis wrong and unlocks SPX2865-2885. The problem for the Bulls is that the higher the markets go without a more normal retrace over the short term (days weeks) the more bearish it will get longer term (months-years).”

    In addition, over the weekend I found: “It’s possible wave-a of -2/b has completed at Friday’s SPX2722 low and wave-b of -2/b is underway. It depends on how high the currently anticipated bounce will carry: above SPX2767 and wave-b is confirmed. If the bounce stall at ~SPX2750 and heads lower, wave-a will likely turn into five waves first before wave-b takes hold. But, market breadth is currently so extremely oversold and at extremes from which normally already a snap back rally would have occurred on Friday. Thus odds favor a green start to the week”.

    Well, green it was 🙂

    Then on Monday I found: “Wave-a of 2/b completed on Friday at SPX2722 and wave-b is now ideally underway to SPX2800-2810; possible above SPX2817 in case of an irregular flat correction”

    All targets reached 🙂 So far so good 🙂

    Notice that SPX2832.44 is the 2.236x extension of wave-i, measured from wave-ii (wave-i: 2346.58->2520.32, wave-ii: 2443.96). Wave-v topped at SPX2817 on March 4 and thus fell short of the ideal Fib-extension target. Often then the b-wave will do the job. Friday we got SPX2830.72; off by 1.72p. Close enough?!

    Monday/Tuesday need to be red to confirm the irregular b-wave thesis and match Fib and Gann turn-dates, otherwise SPX2880-2910 are up next…

    Trade safe folks!

    Liked by 1 person

  10. Thank you OEW group, much appreciated.
    The bullish count, If minor 2 is over, with a very shallow. .20 retrace. 473 up 95 down. then i would guess minor 3 would be 1.618 of minor 1 so 765 points from 2722. Bringing sp to 3487. Wow. Then with such a shallow minor 2. Minor 4 I would assume would be deep. .618 down to 3014 a 473 point correction then minor 5 equals 1 at 3487 again or a slightly higher high.
    if minor 2 hasn’t ended at we head lower. Minor 2 will probably end at 2642. We’re c is 2x a 95×2 190. 2732-190 is 2642.
    So if we are to head down and 2832 was the top retrace areas to watch first 2822 need to fail
    .38 2790 area
    .50 2777
    .618 2764 area.

    Thanks again and everyone enjoy you weekend

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