Provided by the OEW Group
August 3 2019
This week SPX stared off down by 14 points within the first hour, then rallied and traded in a narrow range to close Monday just 6 point off last week’s close of 3026. Tuesday gapped down and declined to 3001, then rallied back to partially fill the gap, but closed down another 10 points to 3010. Wednesday opened up slightly higher and traded in a narrow range until the Fed announcement to move fed funds lower by 25 basis points. After the press conference began, the market sold off aggressively to a low of 2958 by 3pm, then rallied and bounced around to finish the day at 2981. On Thursday, SPX rallied nearly all the way back by noon to pre-Fed levels around 3014, until Tariff Man intervened to announce new tariffs on China. From there, the market rapidly sold off to end Thursday at 2950, followed by a gap down and further decline on Friday to reach the low of the week at 2914 before noon. SPX then chopped higher and rallied up to 2944, before settling into the close to finish the week at 2932. An exciting and volatile week!
For the week, SPX/DOW lost 3.10%/2.60% while NDX/NAZ lost 4.04%/3.92%.
On the economic front, Personal Income and Spending, PCE and Core PCE Price Index, and S&P Case-Shiller Index were all higher.
Next week economic news comes from ISM non-Manufacturing Index, JOLTS, MBA Mortgage Application Index, Crude Oil Inventories and Consumer Credit.
LONG TERM: Uptrend
In the US, the long-term count remains unchanged with the Super Cycle SC2 low in March 2009. The Primary wave I high occurred in May 2015 and Primary wave II low in February 2016. Primary wave III has been underway ever since. Major wave 1 high of Primary wave III occurred in October 2018 and Major wave 2 low in December 2018. Intermediate wave i of Major 3 is now underway and is subdividing into Minor waves.
MEDIUM TERM: Downtrend
This week opened down and continued to close down every single day, which generated the largest pullback since Minor wave 2. The decline was sufficient to confirm a new downtrend. As a result, our medium term status has been updated, which suggests Minute wave ii is subdividing with an irregular structure. All four of our key US markets are now in confirmed downtrends, as well most international markets that we track. We cautioned last week that DOW had not yet confirmed the third wave up, as it peeked in line with our SPX Minute wave i, which turned out to be a good indicator of the pending reversal (see chart below).
We anticipate that a typical decline for this downtrend would be in the 5% range, which suggests there may be more to go. But 114 points down so far from the irregular top meets minimum requirements for Minute wave ii. Notice DOW got extremely oversold at the low, the most so since Major wave 2 last December. We will be watching the short term waves for signs of a bottom in the coming days. Although we still expect Minor wave 3 to exceed the 3300 level, we will be updating our medium target for Minute wave iii after this downtrend completes.
Medium term, RSI is oversold at the low this week and MACD continues to roll over from a negative cross.
We updated our short term count to reflect the subdividing Minute wave ii as referenced in the previous section. This suggests that a complex irregular structure is in play with Micro wave a = 2973, Micro wave b at 3028 and a subdividing Micro wave c in progress with a low of 2914 so far. As noted last week, the key level of 2976 was broken which triggered the failure of our previous more bullish count. Now we have Minute wave ii reach within just a point of our 2913 target mentioned in the last couple of reports. This begs the question of a potential bottom close by and suggests the possibility of at least a meaningful bounce in the near term. Next target for an extension lower would be the prior small wave at 2875, which is just below our next lower pivot range.
Short term support is at the 2929 and 2884 pivots. Resistance is at the 2957 pivot and prior support at 2973-2976. RSI ended the week neutral and has yet to generate a positive divergence off the lows.
Asian markets (using AAXJ as a proxy) lost 5.54%.
European markets (using FEZ as a proxy) lost 4.04%.
The DJ World index lost 3.07%, and the NYSE lost 2.99%.
Bonds are in an uptrend and gained 1.34%
Crude oil is in a downtrend and lost 0.96%
Gold is in an uptrend and gained 2.69%
GBTC is in a downtrend and gained 8.54%.
The USD is in an uptrend and gained 0.10%.
Sorry for it being late. Been a crazy week!
Have a good week!