Weekend Report

Weekend Report

Provided by the OEW Group

August 17 2019

SPX started out the week with a gap down (same as last week) and continued lower for the rest of the day to close 9 points off Monday’s low at 2882.  Last week’s close was 2919.  Tuesday rallied sharply to the high of the week at 2943 within the first hour of trading, but then pulled back and traded in a range to finish the day at 2926. Wednesday gapped down big at the open, as the bond market reacted forcefully, apparently to the turmoil in Hong Kong.  Within the first 10 minutes, SPX retraced the entire Tuesday rally, then proceed to decline for the rest of the day and close on the low at 2840.  Thursday saw continued weakness as SPX declined to the low of the week at 2826 in the afternoon, followed by a rally back to 2855 before closing the day at 2845.  Friday finally gapped up and rallied to a high of 2891 just before noon, then leveled off within a few points for the rest of the day to close the week at 2889.  A third consecutive week of volatility!

For the week, SPX/DOW lost 1.03%/1.53% while NDX/NAZ lost 0.60%/0.55%.

On the economic front, CPI, Core CPI, Import Prices, and the Treasury Budget deficit all increased.  Our Weekly Leading Indicator is down slightly from last week but holding firm at 49.5%.

Next week economic news comes from Existing Home Sales and Initial Claims.

LONG TERM: Uptrend

spxwkly

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 and Minute waves.

As mentioned last week, we haven’t yet seen any evidence on the long term charts to suggest anything more than a typical medium term downtrend in context of an ongoing bull market.  However, the move in bonds this week pushed 3o year rates to new lows, prompting an additional subdivision and extension of our long term cycle low originally established by Tony back in 2016 (updated chart below).

tyxmonthly

This caused some concern and generated much discussion within the group.  The general consensus was that even though tariffs may be a contributing factor, the root cause of such a shift is most likely based on worries over economic risk in Asia due to the Hong Kong protests and potential for recession in Europe.  Nevertheless, it’s just not showing up broadly in the US markets yet.  We discussed several options for alternate counts with more bearish outcomes and concluded that the probabilities are too low at this time to warrant adding these into the mix.  We will continue to monitor and adjust our outlook on these alternates as more data comes in.

Currently we have all four of our core US markets and most US sectors in confirmed bull markets and trading not far from the highs.  While RUT and TRAN are notable outliers, these indices have been in bear markets since December and have been struggling to regain their footing.  It’s not unusual for TRAN to deviate from DOW like this, it happened exactly the same way back in 2012 coming off a deep 20% correction in 2011.  One of our members has suggested that RUT in particular may be more susceptible than most to the bond rally due to higher weighing in rate sensitive shares.  Still there’s historical precedence for these kinds of sideways moves as RUT moves in corrective structures whether in bull or bear mode.  Consequently, we don’t consider these deviations either out of the norm or cause for concern.  The bottom line here again is, there’s just not enough OEW evidence in the few sectors that are underperforming to change our long term outlook.

MEDIUM TERM: Downtrend

spxdaily

SPX opened lower for the third week in a row, rallied back on Tuesday to find resistance at the medium term EMA’s, then accelerated down from there to find support right at last week’s higher low of 2826.  This is now the second test of the low established last week at 2922 and sets up a potentially completed pattern for Minute wave ii, with Micro wave a = 2822, Micro wave b = 2943 and Micro wave c = 2826. The 200+ point 6.5% decline mentioned last week is still intact.  Although, the rally off the low is substantial, it’s still within range of countertrend moves in context of the existing downtrend.  Consequently, caution is advised for a possible extension lower.  Some in our group have noted that strength in NAZ and NDX may be a bullish indicator, since these are making higher lows relative to DOW and SPX.  It’s possible, but could also be a case of the glass half full, since these may still have work to do on the downside.  There’s just not enough evidence yet to mark the bottom for this downtrend.  A SPX rally back above 2930 or so will further build confidence for the Minute wave ii bottom.  However, a break below 2822 will signal Micro wave c is subdividing and brings into play alternate counts.  We will report on those if/when price dictates.  We’re still waiting till it becomes clear that a new uptrend is underway before updating our targets for Minute wave iii.

Medium term, RSI ended the week neutral and MACD is yet again trying to turn back up.  DOW continues to show positive divergence based on the low this week.

SHORT TERM

spxhourly

SPX was never able to impulse higher off of last week’s rally, but instead failed at the 2943 high on Tuesday, after a corrective sequence of overlapping waves up from 2822, then collapsed to retest prior lows at 2826.  This now suggests the irregular zig-zag pattern reported last week becomes our preferred count for Micro wave a, followed by an overlapping five wave structure for Micro wave b.  Micro wave c is either underway with two small waves so far or completed as a failed flat at 2826.  As mentioned in the previous section, the wave status at this juncture is unclear, so further waves are needed to sort it out.  As always, we’re looking for an impulsive structure to develop using our short term techniques to help solidify a potential bottom.  We can count one 68 point wave up to 2894 based on Friday’s rally, but so far, it’s inconclusive.  If the market reverses lower, that will suggest the possibility of double three pattern and potential extension for Minute wave ii.  Not much more to report until further price action clears up the near term picture.

Short term support is at the 2884 and 2858 pivots.  Resistance is at 2929 and 2957 pivots.  SPX is still holding within the same support and resistance levels as last week.

FOREIGN MARKETS

Asian markets (using AAXJ as a proxy) gained 0.33%.

European markets (using FEZ as a proxy) lost 1.48%.

The DJ World index lost 1.28%, and the NYSE lost 1.32%.

COMMODITIES

Bonds are in an uptrend and gained 1.04%

Crude oil is in a downtrend and gained 0.57%

Gold is in an uptrend and gained 1.00%

GBTC is in a downtrend and lost 11.35%.

The USD is in an uptrend and gained 0.70%.

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

 

Have a good week!

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457 Responses to Weekend Report

  1. valunvstr says:

    Possible abandoned baby? Good news, is that it is VERY rare and has a good hit rate. Bad news, is the performance is fairly weak relative to other patterns.

    Like

  2. kvilia says:

    So far nothing to change the bearish stance. Take out 2950, then we’ll talk. Tomorrow should clear things up.

    Liked by 1 person

  3. Today’s rally brought to you buy Andrew Bary and Barrons.
    Big write up over the weekend on the ENERGY SECTOR being undervalued.

    XOI + 25

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    • SPYtrader says:

      I don’t know who Andrew Bary is, but your thinking is all these big time money managers and analysts that don’t pay any attention to fib zones or charts and do unlimited research on companies all of sudden wake up and read an article in Barrons and then hurry to their computers and hit the buy button. Who knew it was that easy.

      Liked by 1 person

      • SPY…

        Here let me educate you.

        Andrew Bary is a senior editor for Barrons.

        He wrote a feature article on the ENERGY SECTOR and how it’s terribly unloved, to the point of only making up a 4.7% weighting of the S&P 500… which happens to be the LOWEST WEIGHTING in 40 years.

        There was also a point made about how even after an inverted yield curve occurs, the energy stocks are able to outperform the S&P going forward. Moreover, the dividend yields of 5 and 6+% might also be looked upon as attractive as well.

        If you don’t think that such an article, which is read by a ton of money managers…. might have acted as a “catalyst” to bring some buying (or short-covering) into the sector, then you haven’t been around the markets all that long.

        Like

        • PS. If you think there was some “magic” Fibonacci number that this group hit recently, by all means please let us know what it was and feel free to post a chart of the XOI or XLE highlighting it.

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        • SPYtrader says:

          I was trying to make a funny point but failed. Trading and investing doesn’t have to be complicated. I thought you were the one that once said that big time money and fund managers don’t look at simple things. And yes I have been around awhile.
          Joe Granville was my Uncle but maybe you are too young to remember Joe.

          Liked by 2 people

          • Fund managers look at lots of things for valuation purposes.

            A 40 year low in the S&P weighting of the Energy Sector…. while not on any growth manager’s radar, will clearly attract value players out there, especially given the oil patches newfound focus on emphasizing cash flow and returning some of that cash flow in the form of dividends and buybacks.

            I am well aware of who Joe Granville is. In fact, I had several options positions on when he issued his infamous SELL SIGNAL on early January of 1981…. which lead to a 2.4% collapse.

            I was a Junior at the University of California at Berkeley at the time.
            I remember it well.
            🙂

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          • SPYtrader says:

            Joe Granville, the technical analyst famous for his 1981 “sell everything” call that caused a 2.4% one-day drop in the Dow, died at the age of 90. And no, Joe was not really my Uncle. My dad did meet him.
            Maybe Joe and Tony are walking the real streets of gold and sharing stories.
            My dad is also deceased and hopefully listening in on some of those stories. 🙂

            Liked by 1 person

  4. swamper1 says:

    Phil, you nailed it last week by pointing out the correlation between rising yields and rising stock prices. ” it works until it doesn’t “. Nice job!

    Liked by 1 person

  5. Unfortunately I posted the wrong breadth charts in my last post Friday August 16 under the prior weekend update where I looked at A/D % and Up/Down Volume % for the SPX400,500, 600. Somehow I’d kept the date cut off at Thursday August 15… My bad, and I apologize for providing the wrong information that day.

    Why is this important? Because last Friday saw a triple 90% day on all three indices for both indicators. See links below:

    https://imgur.com/axSqqN2
    https://imgur.com/uffK5Zl

    That is bullish, and often means upside will continue over at least the next few days. Thus the average pre-election year seasonal pattern I’ve shared before is still very much into play, targeting a high around SPX2965-3000 early September. See here:

    https://imgur.com/AyRy2jE

    Trade Safe!

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  6. Frank Gaggia, Jr. says:

    SPX presently sitting at 50% retrace of the sell-off. Daily MBB at 2940. 34d ema at 2930. When the daily 13ema crosses the 34ema it’s usually the 50% point of the move which projected to 2742 (using closing prices). We obviously didn’t get there (yet?) or to the weekly LBB @2790. I got caught with my shorts on (puts), but they don’t expire until Sept. 6 and 13 so I’m holding for now.

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  7. valunvstr says:

    Gap at 2857 and 2893. Both will eventually be filled.

    Liked by 2 people

  8. phil1247 says:

    SPX cash

    A = C 2947 and back testing 2950 hwb

    1.618 X A is at 3022 and back testing the all time high !

    Liked by 2 people

  9. The energy sector weighting in the S&P 500 is now down to 4.7%
    That’s a 40 year low.

    Like

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