Weekend Report

Weekend Report

Provided by the OEW Group

October 5 2019

SPX opened the week up and rallied most of the day Monday to close at 2977.  Last weeks close was 2962.  Tuesday had a gap up to reach the high of the week at 2993 within the first half hour of trade, but then sharply reversed lower, apparently based on the bad ISM report signalling a contraction in manufacturing.  SPX then sold off the rest of the day Tuesday, gapped down on Wednesday and continued to decline until it found the low of the week at 2856 in the first hour on Thursday.  From there, SPX rallied to reach 2911 by Thursday’s close.  Friday opened with a gap higher and continued a strong rally all the way back to within Tuesday’s price range, before closing the week at 2952.

For the week, SPX/DOW lost 0.33%/0.93% while NDX/NAZ gained 0.94%/0.54%.

On the economic front, ISM Manufacturing and Services were both lower, although Services remains in expansion mode.  Payrolls were higher as the unemployment rate made a 50 year low at 3.5%.  Our Investor Sentiment indicator increased to 56.5% and is quite bullish as we read the data.  The ECRI weekly growth indictor moved up for the third week in a row and is back above the zero line at +0.83%.

LONG TERM: Uptrend may be weakening

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 and the Major wave 1 high of Primary wave III occurred in October 2018.  Our preferred long term count is posted on SPX, which reflects that Intermediate wave i of Major wave 3 is underway from the Major wave 2 low in December 2018 and continues to subdivide into Minor, Minute and now Micro waves.  However, we maintain our cautious status that the uptrend may be weakening until Major wave 3 can clearly breakout of this overlapping structure.  Consequently, we’re still tracking our alternate count on DOW in the public chart list.

MEDIUM TERM: Downtrend

spxdaily

SPX extended the decline with a large outside reversal down on Tuesday (same as last week), followed by a gap below the critical 2940 level mentioned last week and reached a low of 2856 Thursday morning.  A strong reversal for the remainder of the week retraced halfway back for the entire decline from the 3022 high.  SPX finished the week at 2952, which is within the next pivot range and just below the medium term EMA’s which are providing resistance for the time being.  This price action confirmed that a new downtrend is underway with the possibility of a completed pattern at the 2856 low.  This also resolved the scale dilemma that we’ve been discussing for the last few weeks.  As a result, we can now count five waves up from 2822 to 3022 with a small fifth wave, which suggests the entire uptrend is Micro wave 1 of Minute wave iii.  Micro wave 2 has been underway since the September top and found support at our 2858 pivot range, with medium term subdivisions that suggest a completed zig zag pattern of three waves down.  This represents a 5.5% decline, which would be typical for this wave scale.  However, we need more price action to see if a new uptrend can take hold, or whether another retest of the low may be forthcoming.  Medium term RSI got sufficiently oversold at the low, which is consistent with prior downtrend lows.

SHORT TERM

spxhourly

As mentioned in the previous section, we’ve rescaled the count to show Micro wave 1 as five Nano waves up from 2822 to 3022, which includes a subdivided leading diagonal for Nano wave i as part of that sequence.  Using our short term techniques we can count seven small wave down from the 3022 top, which suggests a 5-1-1 zig zag pattern for Micro wave 2 so far.  That gives Nano wave a = 2946, Nano wave b = 2993 and Nano wave c = 2856.  We then have a 98 point rally off the low to the intraday high on Friday, which is by far the largest retrace since the downtrend began.  Short term RSI ended the week extremely overbought, so a small wave pullback could come at any time.  With all the volatility this week, SPX ended right back in the same support/resistance zone where it left off last week.  As one of our members pointed out while discussing group sentiment, “nothing has changed”.  So far, only the speculative short term waves have been affected.

Short term support is at the 2929 and 2884 pivots.  Resistance is at the 2957 and 2984 pivots.

FOREIGN MARKETS

Asian markets (using AAXJ as a proxy) gained 0.83%.

European markets (using FEZ as a proxy) lost 1.49%.

The DJ World index lost 0.90%, and the NYSE lost 1.08%.

COMMODITIES

Bonds are in a downtrend and gained 1.17%

Crude oil is in a downtrend and lost 5.54%

Gold is in an uptrend and gained 0.43%

GBTC is in a downtrend and gained 3.89%.

The USD is in an uptrend and lost 0.22%.

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

 

Have a good week!

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474 Responses to Weekend Report

  1. Jim Guthery says:

    Spot Vix closing the gap on Future Vix; we shall see…

    Like

  2. torehund says:

    A little X fully retraced (up equals down) and completed on the Rut, could head North here….

    Like

  3. phil1247 says:

    EXAS

    continues in free fall
    hope you exited longs as indicated yesterday

    Like

  4. phil1247 says:

    dollar continues free fall
    gold still going nowhere

    Like

    • fionamargaret says:

      ….. there is not only the repo rate, but stress in the money markets….defunct banks, not contained to Europe….

      Liked by 1 person

      • torehund says:

        Down in the grocery store they have something called peas, meat and pork-fat. A bomb in terms of nutritional value; I figure as little as a half a box could get me through the day. But if conditions the likes of Venezuela would be spreading, (even “Venezuela light”) I might have to pull the trigger and stack away some cans. I am not the kind of person you would find waiting in long lines so maybe prepping is a smart option. England could run out of toilet paper during a hard Brexit, missing that specific commodity was actually what started the misery in Venezuela. Lets hope for the best.

        Liked by 1 person

        • fionamargaret says:

          It is the simple things one takes for granted Tore.
          I remember my mother saying to stock up on elastic (supposedly unable to obtain during the war years),
          It always struck me as somewhat funny, as we were looking after children from the Blitz, ration books for food, gas etc (no obesity then)…bomb shelters that were tended lovingly by a gardener…. tidy coffins…
          Take a trip to Chernobyl…all the greenery grew back untouched, and lo and behold animals and birds which were all but forgotten came back too….x

          Liked by 1 person

          • torehund says:

            being a trend observer its interesting seeing world in reverse too, at times…Going to Peru the ambience reminds there me of the feel I had when growing up, just precious 🙂 Sorry to say the enthusiasm left the west, have to travel then in order to get the juice…. and a hair cut for one dollar (5 soles) 🙂

            Liked by 1 person

      • fionamargaret says:

        “we are walking into a depression led by GE 94) and BA (287)”…mentioned a few months ago…
        BA has a weight distribution problem…not easy to move wings….

        Like

  5. fionamargaret says:

    Event – driven rally consistent with an E-Type wave of a triangle. Love E-Type Jaguars…will this fill us with the same excitement…..
    If so, major indices approaching the completion of a potential bearish terminal triangle.
    Prices need to drop below the October low to confirm….

    Tight stops are required…and remember all that happened was the US and China agreed to pursue an agreement..5 weeks from now….and think we are going to see exogenous shocks…so…

    $SPX down to 2137.76
    GLD up to 199…
    TLT up to 225…
    UUP up to 36…quite a bit higher from here
    EUO (short euro)….defunct banks known and unknown ….with a few surprises…(you all like surprises, yes??)
    UVXY, TVIX as needed…..

    Do your own due diligence, and see what you think…

    Liked by 1 person

  6. schizo1688 says:

    I like the last paragraph, someone been calling 2137 spx for the last 5 months in here

    Liked by 3 people

    • fionamargaret says:

      ….but you must admit Phil is kind enough to print out his assets, with no disclaimers on his trades…fine if no one loses money…but the site itself is a sitting duck…
      Wonder if that is why Tony told him not to do that….

      Liked by 1 person

  7. mcgcapital says:

    h66h:

    Yes I do believe that fundamentals trump technicals, on the basis that most large investors (banks, pension funds, insurance companies, HNW) do fundamental analysis with technical analysis almost as an afterthought with very little weighing put on it. Fundamentals are what move markets longer term, and they’re generally much slower to change direction. Technicals can literally go from positive to negative and back all the time… it’s fine to use them for trading (in fact, it’s pretty difficult to trade profitably without them) but they can’t mean much in the long term when they’re so changeable. I guess what I’m saying is that traders use technicals but investors use fundamentals.

    The concept of having a roadmap based on technicals makes no sense to me, because you can’t project out when things can and will change in the future. So the concept of the market being in waves I find difficult.. if it’s in wave 3, how can you be sure it will pullback and then have a wave 5, and then have a much bigger correction. That’s too difficult to predict with any usable degree of accuracy. We also regularly seem to go from wave 3 up to straight down without the wave 4s and 5s. I can see how it can be done retrospectively (i.e. an academic exercise to point out where the market was in the cycle at a given time), but if you go to any past inflection point and read the updates it doesn’t tend to call turns very well. Taking the last week or so as an example, it proves how difficult it is to use EW in real time. Market got oversold at 2855, rallied into and after NFP to 2960, then tanked again on the news China was going home early to 2882. Had the market gone straight down, the rally would have been counted as a B, with C underway. Given news then came out which was more positive, the market reversed back higher and hit 2993. These moves are event dependent rather than wave count driven. If the market now drops to fresh lows, then this week will be counted as a A-B-C up as part of a larger B, if we carry on up then no doubt 2855-2960-2882-3000+ will be counted as a wave 1-2-3. So you have to keep changing the wave labelling in retrospect as real time progresses, it’s not on a set course.

    As for inflation and it’s role in driving markets, what I would say is this. The last 20 years have been a very low inflation (deflationary in some sectors) environment, but not true deflation where prices fall for a sustained period. Very low inflation is bullish for stocks on the basis that rates are kept low and that allows multiples to expand, and in addition it aids corporate bottom lines because costs are kept low and predictable, and margins expand. So wide margins keep earnings high, and add to this high multiples and you get high markets. If inflation was to pick up it would upset the status quo and would be bearish for the following reasons. Wages and raw materials costs would go up, businesses would likely have to absorb at least some of this, so margins would come down, pressuring earnings. In addition, the fed (assuming they actually act to their dual mandate which is debatable) would have to raise rates in response and that would reduce valuation multiples all else being equal. So lower valuations plus tighter margins equals lower markets.

    For deflation to be bearish and inflation to be bullish, it has to be much more extreme than that. Would need to be at a level that really has a material impact on revenues. If these markets were to rise substantially over the coming years driven by high inflation, that’s basically a fiat currency debasement play, and it’s a whole new can of worms. For a start, you only get from where we are now to there via some extreme policy decisions… can’t see those decisions being taken lightly, and only from a position of crisis, which would only happen if things were to get pretty bad for the economy and markets (i.e. much lower prices would come first before that would be even a possibility). Even then, let’s say we get MMT, we get more and more QE, plus other forms of new and extreme intervention, and the dollar collapses. Firstly, there are better assets to own than stocks in that environment for a start (e.g. gold and other hard assets). And secondly, economies need stable currencies to function properly so that state of flux likely wouldn’t last that long with the collapsing fiat being replaced being something else (e.g. something gold backed, a basket of currencies, a cryptocurrency)… and SPX would than be priced in the new currency and the argument for being bullish of it just because of currency debasement would be gone. I guess what I’m saying is, it can’t be relied upon that 1. we’ll get higher inflation and 2. that it will be enough to be at level that is bullish for stocks and 3. even if it does inflate stocks, it might not last. Feel like the next few years are going to be very interesting so let’s see what happens… wouldn’t want to be constrained by having a roadmap that’s for sure.

    Agree with all of this:
    “Any long term conviction in the market can kill you in the short term, depending on your trading style. Markets are extremely complex chaotic systems; therefore, the best you’re going to get is an edge with probabilities. Expecting perfectly objective and indisputable analysis is unreasonable.”

    Liked by 6 people

    • torehund says:

      Good comment, seem like an agreeable solution to inflate away debt (not sustainable). The mechanics behind it are already established; some sort of a “crisis” will unfold the events leading into a period of excessive inflation with a “stag” in front of it.
      These are very cumbersome times for the public, but we have Punk Trump to deal with it 🙂

      Liked by 2 people

    • CampFreddie says:

      Mcg – Good post thnx.

      Like

    • gtoptions says:

      All speculation and subjective to your bias.

      Like

      • mcgcapital says:

        Would hazard a guess that my bias based on economics has a greater probability of being correct than your bias based on wave nonsense. Time will tell though!

        Liked by 1 person

        • gtoptions says:

          My bias is not based off the waves. It is based off of time and price.

          Like

        • gtoptions says:

          The only count that matters is when you bank your gains. 😉

          Liked by 1 person

          • mcgcapital says:

            That is true.. I just can’t see the Dow 100k anytime soon. I know before you’ve said you expect that by the 2030s.

            But by my calculations we’d need 10% nominal GDP growth for 15 years to get from where we are now to there, all else being equal (valuations, margins and rates where they are now). I can’t see that when we aren’t even managing half of that rate over the last decade despite huge amounts of stimulus and debt

            Like

          • phil1247 says:

            cash in profits often
            thats my new mantra GTO

            i think i am going to change my avatar to ART CASH IN … LOL!!!

            https://www.cnbc.com/art-cashin/

            Liked by 1 person

        • torehund says:

          Mcg as we have been discussing before (in here), Elliott Wave theory isnt a preferred method for sorting out short range movements, but helpful in a trending market. In the chop with lots of x waves (complete retraces), it doesnt work at all. In this regard it seems to me that Phils method is something to look into for those who fancy day trading. News follows the same pattern, indecisive enterpretation and minute by minute changes causes a choppy environment. Its currently trendless until the tumults in the middle east resolves, and political turmoil in the US abates. When Trump start trending we will then discover a more reliable market.

          Liked by 2 people

          • M Wags says:

            Tore, you make some excellent points. And I think that the constant “flip-flops” that we see are a result of all of the X-wave chop.

            My question would be what percentage of active posters here are actively “day-trading”?

            My guess is that it’s less than 20%.

            Which then begs the question, why an Elliott Wave blog that prides itself on getting the intermediate term right, winds up becoming littered by 1 or 2 posters that use a “day-trading” methodology that has nothing to do with Elliott Wave.

            To me, that’s the real question.

            Liked by 2 people

          • torehund says:

            Wags: In Tonys time to there were day traders appearing during trading hours, and the long term investors like myself contributed during after hours. It worked fine until the long term scope of things started to hinge of the P-3 which appears to be caught in “slop and chop” for the time being. Thats where the likes of Phil excels with his method. Personally I dont mind him finding some rhythm in the squiggles, but miss a trending market. Guess we just have to wait out the chop, or turn frustrated :), as always.

            Like

  8. torehund says:

    Good weekend all, cheer up and take advantage of the gifts that the market will yield in the months ahead 🙂

    Liked by 3 people

  9. cj32 says:

    Cr. to CBZ

    Liked by 1 person

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