Provided by the OEW Group
September 21 2019
SPX opened the week with a gap down and traded to 2991 by noon, before rallying back to close Monday 9 points off last weeks close at 2998. Tuesday opened flat and traded in a narrow range all day until a rally in the last half hour to finish the day just one point off last weeks close at 3006. Wednesday opened down and traded lower into the Fed announcement to cut rates by 25 bps with the new target range at 1.75 to 2.00%, then proceeded to make the low of the week at 2979 by 3pm, before reversing and rallying back to last weeks close at 3007. Thursday opened with a gap higher and rallied up just above last week’s high at 3022 by noon, then faded for the rest of the day to finish unchanged. Friday opened higher but peaked in the first half hour of trade at 3016, then sold off sharply in the afternoon to retest the low at 2985 before recovering to finish the week at 2992.
For the week, SPX/DOW lost 0.51%/1.05% while NDX/NAZ lost 0.88%/0.72%.
On the economic front, Industrial Production, Capacity Utilization, Housing Starts, Building Permits, Existing Home Sales and Crude Inventories were all higher. The ECRI weekly growth indictor moved up again to -1.46%.
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. We continue to track our alternate count on DOW in the public chart list. Our preferred long term count remains on SPX, as Intermediate wave i of Major wave 3 is underway from the Major wave 2 low in December 2018 and continues to subdivide into Minor and Minute waves.
Even though this is a very bullish long term outlook, we maintain the current status that the uptrend may be weakening. Major wave 3 subdivisions have yet to breakout of an overlapping structure, while the bond market remains in turmoil with negative rates, yield inversion and now this week’s Fed intervention to mitigate spikes in short term rates. We reported previously about the negative OEW consequences of the yield inversion which gave us the alternate count. Until Major wave 3 can clearly breakout, we remain cautious long term with the possibility that Major wave 2 could extend and retest the December low.
MEDIUM TERM: Uptrend
SPX traded down this week into the Fed rate decision and made the low of the week at 2979 after the announcement. From there, SPX recovered to reach a high of 3022 by Thursday noon, but couldn’t hold that level and proceeded to retest the low on Friday, before finishing the week down at 2992. This price action was sufficient to generate additional medium term subdivisions, such that we can now count three waves up from the Minute wave ii low established last month, followed by a subdividing fourth wave. As suggested last week, we got the 42 point pullback that was anticipated, but its appearance this early in the sequence creates a dilemma with the wave count. The scale of the three waves up so far is uncertain pending further price action. For now, we’re counting the structure as Micro wave 1 = 2940, Micro wave 2 = 2892, Micro wave 3 = 3021 and Micro wave 4 subdividing with a retest of the weekly low still in play. This structure requires a large fifth wave in order to achieve the logical target for Minute wave iii. Otherwise, a small fifth suggests the count will need to be rescaled to Micro wave 1 for the entire sequence off the August low. The other possibility would be a Micro wave 3 subdivision, but there’s no way to know without additional price action. Main thing now is the uptrend continues to show impulse structure.
A clarification on price targets may be helpful, as some of our members noted confusion in numbers previously reported. The overall price structure for Minute wave i and ii project the 3300 level as our initial target for Minute wave iii. This is taken from the 1.618x ratio with the first wave. In order to achieve that target given the current subdivision, it would require one of the Micro waves up to exceed the same extension ratio of 1.618x. Currently, that ratio for the potential Micro wave 5 would suggest limited upside to just under 3200.
There’s not much to add for the short term discussion since the medium term and short term waves are currently tracking close to one another. In addition to the three waves up mentioned in the previous section, we’re counting Micro wave 4 as an irregular pattern, Nano wave a = 2979, Nano wave b = 3022 and Nano wave c in progress with potential to extend below 2979. This count will be invalidated if the pullback is deep enough to overlap Micro wave 1 at 2940. The 32 point “small wave subdivision” reported last week was negated by our short term techniques as Micro wave 3 was qualified by price action this week. This caused Micro wave 3 to fall short of the 3080 target and now sets up one of the other scenarios mentioned in the previous section for Micro wave 5.
Short term support is at the 2984 and 2957 pivots. Resistance is at the 2995 and 3033 pivots. Short term RSI ended the week oversold.
Asian markets (using AAXJ as a proxy) lost 2.06%.
European markets (using FEZ as a proxy) lost 0.33%.
The DJ World index lost 0.33%, and the NYSE lost 0.23%.
Bonds are in a downtrend and gained 1.07%
Crude oil is in an uptrend and gained 5.91%
Gold is in an uptrend and gained 1.04%
GBTC is in a downtrend and lost 1.51%.
The USD is in an uptrend and gained 0.31%.
Have a good week!