Provided by the OEW Group
August 24 2019
SPX started out the week with a gap up and rally to close Monday at 2924. Last week’s close was 2919. Tuesday gapped down at the open, rallied back to fill the gap, then proceeded lower for the rest of the day to finish at 2901. Thursday gapped over Mondays high and made the high of the week at 2939 within the first 20 minutes, then retraced most of the prior two day rally before noon, but recovered to finish the day just one point off Monday’s close. Friday gapped down at the open to test Tuesday’s low within the first 30 minutes, then rallied to fill the gap, but reversed and accelerated lower on the latest Tariff Man threat to “order US companies to find an alternative to doing business in China”. From there the markets continued lower to make the low of the week at 2835, before closing above at 2847. Volatility continues for the fourth week in a row.
For the week, SPX/DOW lost 1.44%/0.99% while NDX/NAZ lost 1.83%/1.83%.
On the economic front, Existing Home Sales increased, while new Home Sales declined. Initial and Continuing Claims both declined. The ECRI was down slightly just below the zero line, but still holding higher lows for its uptrend this year.
Next week economic news comes from Durable Goods, Consumer Confidence, GDP, Personal Income and Spending, PCE and Consumer Sentiment.
LONG TERM: Uptrend may be weakening
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 and the Major wave 1 high of Primary wave III occurred in October 2018. Based on price action this week, the Major wave 2 low in December 2018 has come into question. As a result, we’ve updated the DOW charts with an alternate count to reflect the possibility of an extended Major wave 2, which suggests that Intermediate wave b high occurred in July 2019 and Intermediate wave c has been underway since then. We continue to carry our primary count on SPX until more data becomes available, which suggests Intermediate wave i of Major wave 3 is underway from the December low and is subdividing into Minor and Minute waves.
Based on concerns discussed last week about the move in bonds, we’ve been searching our historical OEW data set for clues of a pending change in the share markets. We got the first signal of a potential crack in the long term charts this week as three of the four key US markets we track closed below the long term EMAs. DOW is now below for two weeks in a row, while NDX is the one holdout but only by a slim margin. This price action can be associated with the end of a medium term downtrend in context of an ongoing bull market, as long as it reverses quickly. However, a sustained series of closes below would be concerning and give credence to our alternate DOW count.
The second clue came out of all the recent attention in the media about a pending inversion of US Treasury maturities 2’s/10’s. Most of the focus seems to be whether an inversion has occurred and if it signals a recession, and even some of it may be political. We’re looking at it instead from a purely OEW viewpoint. We noticed since mid-1970 there’s a cycle in the data, that’s currently overdue with the trend clearly in place for inversion, https://fred.stlouisfed.org/series/T10Y2Y/. Given that, we checked data going back to the mid-1950’s for these kind of events against our OEW historical data set and found an 80% correlation with either the end of OEW bull markets or the beginning of OEW bear markets. It’s a limited set of data points, so not statistically significant, but nonetheless, enough for us to consider the alternate count.
MEDIUM TERM: Downtrend
SPX opened the week with a strong gap up but ran into resistance right our 2929 pivot. Every day it tried to breach that level, was unable to close above, and maxed out with an intraday test on Thursday at 2939. Although the reversal on Friday did not take out the prior lows, we believe it was sufficient to invalidate our medium pattern for Minute wave ii. Consequently we’ve updated the count to show another extension underway, which gives Micro wave a = 2826, Micro wave b = 2839 and Micro wave c ongoing. Turns out the glass may have been half empty, since NAZ and NDX are having difficulty sustaining higher lows as discussed last week. In order for this new count to remain viable, we would target Micro wave c at the 0.618x ratio with Micro wave a, which suggests a bottom around 2812. If it extends much below that, we would have to consider a possible extension of Minor wave 2, or maybe even revert to the alternate bearish count shown on the DOW (chart below). Another concern is the Tariff Man Tweets, which suggests a minimum decline down to the June low around 2727. Our alternate count suggests the market may have topped at the July high of 3028 and is now extending the Major wave 2 from the December low. A SPX rally back above 2940 or so will reverse the pattern and possibly extend Micro wave b. A break below 2822 will further confirm the extension of Minute wave ii.
Medium term, RSI ended the week down but still in the neutral zone and MACD flipped from a bullish to bearish cross.
For the second week in a row, SPX was unable to impulse higher off of the previous week’s rally, and again failed in the same region, this time at the intraday high of 2939 on Thursday. Last week it failed at 2943. This time it started strong on Monday, but chopped around the highs in corrective fashion generating three small waves up to 2943, before collapsing back down on Friday to test just nine points off the prior low and right on our pivot at 2835. This now suggests a likely extension of Minute wave ii, so we’ve updated the short term count such that the failed flat at 2826 becomes Micro wave a, Micro wave b is a zig-zag pattern at 2939 and Micro wave c is ongoing with only one wave down to 2835 so far. The week closed up off the low at 2847, which could be the beginning of the next small wave up, but more data is needed to qualify that. For now, we’re focusing only on the SPX bullish count until that pattern is broken. The bearish alternate is posted on the DOW chart below.
Short term support is at the 2835 and 2798 pivots. Resistance is at 2858 (typo on hourly chart should read 2858) and 2884 pivots. Short term RSI ended the week oversold.
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 0.44%, and the NYSE lost 1.30%.
Bonds are in an uptrend and gained 0.04%
Crude oil is in a downtrend and lost 1.17%
Gold is in an uptrend and gained 0.92%
GBTC is in a downtrend and gained 0.08%.
The USD is in an uptrend and lost 0.49%.
Have a good week!