Provided by the OEW Group
May 11, 2019
Tariff Man and volatility came back this week! After a Sunday night tweet threatening additional tariffs on China, the SPX gapped down to 2898 on Monday. Buyers drove price back up to 2937 by the close, but Tuesday saw another gap down and trend day falling to 2863 before a late day ramp into the close. A small rally continued on Wednesday pushing the SPX near 2900. Traders sold into the close and another gap down open occurred on Thursday with the SPX falling to 2836. An oversold rally to 2876 led to another gap down on Friday to the week’s low of 2825. The markets rallied again with news that the US is giving China 3-4 weeks to come to an agreement or face new tariffs. The SPX rallied to 2891 and closed at 2882.
For the week, the SPX/Dow lost 2.2% while the NDX/NAS lost 3.2%.
Economic news was light this week with positive reports from JOLTS – Job Openings and negative reports from PPI, core CPI and CPI.
LONG TERM: Uptrend
In the US, the long-term count remains unchanged with the Super Cycle SC2 low in March 2009. The Primary I high occurred in May 2015 and Primary II low in February 2016. Major wave 1 high occurred in October 2018 and Major wave 2 low in December 2018. Intermediate wave i of Major 3 is now underway.
MEDIUM TERM: Downtrend inflection point
This week DOW led the weakness with a confirmed downtrend, but was the only one of our four main US indices to do so. We would normally expect at least SPX to follow, but until that happens, markets remain at an inflection point. As a result, we updated the charts to show our primary and alternate counts on SPX and DOW respectively. Our primary count remains a subdividing Minor 3 wave in progress, with Minute i at the recent high. We can count 5 waves up from the March low to a slightly failed double top. Notice the failure is on an intraday basis, but the close is equal. Minute ii is ongoing and may have found bottom with a nice reversal on Friday.
Our alternate count is a subdivided Minor 2 wave, with Minute a at the March low, an irregular Minute b at the April high and Minute c in progress. If DOW can sustain the reversal and hold above March lows, then this alternate count may be eliminated. There is another variation of this alternate that’s on our watch list. We will report on it in the future if/when price dictates.
As mentioned, we’re counting Minute i from the 2722 March low as 5 waves up to the slightly failed intraday top. This suggests the Minute i impulse subdivided into 5 Micro waves 2852>2788>2954>2901>2948. From there, Minute ii is underway and can be counted as 7 waves down which gives a double 3 pattern into a divergent low, 2898>2937>2863>2898>2836>2876>2825. This signals possibility of a significant rally to follow. Pending resolution of the inflection point, this could be just another b wave or the beginning of Minute iii.
Short term support is at the 2858 and 2835 pivots, 2825 and 2800. Resistance is at 2900 and the 2884 and 2929 pivots. The SPX 60-minute chart shows a positive divergence at today’s low and resulted in a 50-point rally. The daily chart still shows price as oversold.
Asian markets (using AAXJ as a proxy) lost 5.8%.
European markets (using FEZ as a proxy) lost 2.4%.
The DJ World index lost 2.7%, and the NYSE lost 1.9%.
Bonds are in an uptrend and gained 0.5%
Crude oil is in a downtrend and lost 0.4%
Gold is in a downtrend but gained 0.3%%
GBTC is in an uptrend and gained 17%.
The USD is in an uptrend but lost 0.1%.
Have a good week!