Provided by the OEW Group
December 7, 2019
SPX closed last week at 3141 after making a new high at 3154 into the Thanksgiving holiday. Negative trade news gapped the market lower on Monday, consolidating in the 3110/3120 range. Tuesday saw another opening gap lower, testing 3070 in the first hour before steadily grinding higher into midweek to recapture the 3110/3120 zone. Friday’s robust employment figures drove the market out of congestion to retest the highs, reaching 3151 before finishing the week at 3146.
SPX gained 0.16%/DOW lost 0.13% while NDX/NAZ lost 0.08%/0.10% this week.
On the economic front, the following reports surprised positively or met expectations: Manufacturing PMI 52.6; Services PMI 51.6; weekly jobless claims 203k; factory orders 0.3%; nonfarm payrolls 266k vs 156k, much better than in October; unemployment rate 3.5%; whole sale inventories 0.1% and Consumer Sentiment Index 99.2 up from 96.6 in November. On the downside: ISM Manufacturing Index 48.1%, ADP employment report 67k vs 121k in October, ISM Non-manufacturing Index 53.9% and average hourly earnings 0.2%.
Next week’s highlight is the FOMC announcement on Wednesday. Other than that, we get NFIB Small Business Optimism Index, CPI, PPI, weekly jobless claims, retail sales, import prices and business inventories.
LONG TERM: Uptrend extension likely underway
In the US, the long-term count remains unchanged with the Super Cycle SC2 low in March 2009. Primary I concluded in mid-2015 with Primary II concluding in early 2016. Primary wave III has been underway since February 2016 with the Major wave 1 high occurring in October 2018 and Major 2 bottoming in December 2018. Our preferred long-term count is posted on the SPX Weekly chart, which reflects that Intermediate wave i of Major wave 3 is underway and continues to subdivide into Minor, Minute and now Micro waves. A breakout above the September Micro wave 1 uptrend high at 3020 has occurred, ushering in a series of potential wave 3 moves higher. However, we’re still waiting to see if the current trend continues to make new highs, rising enough to not overlap the previous uptrend high, during the next downtrend. Until then, we maintain our low probability bearish alternate count as posted on DOW in the public chart list. Note this week how the 13 EMA on the weekly time frame provided support for Thursday and Friday’s strong rally.
MEDIUM TERM: Uptrend inflection point
After posting another all-time high during the previous week at 3154, SPX started this week/month with a sharp pullback to 3070. This ~2.7% decline was the largest counter trend move since October and sets up some interesting possibilities. The pictured scenario sees 3154 as a completed wave, either Micro wave 3, or a potential Nano wave i from the downtrend low at 2856 in early October. The Micro wave 3 scenario suggests the current uptrend may be at or close to completion, while the Nano wave i scenario suggests a very bullish extension may be in play. Consequently, we’ve updated the medium term status as an inflection point. This inflection point will likely remain until either a downtrend is confirmed, or SPX can rally above 3200 or so. A few indices such as SOX and TRAN are in confirmed downtrends, which could be a warning sign for the more bearish medium term outlook. Either way, we continue to project a bull market into 2020 as part of the Minute wave iii subdivision that’s been underway since the 2822 low in early August. Our nominal target for Minute iii sometime early next year remains unchanged at 3300. Once the inflection point is resolved, we will update our medium term projection.
The short term count tracks closely with the medium term subdivisions. We can count five qualified waves up from 2856 to 3154 with a large third wave, which gives a nice impulsive structure to that point. Nano wave v for that sequence fell short of our 3180 target, but was pretty close to fib ratio 0.618x Nano wave i, and stopped right near our 3156 pivot. From there, we have the largest pullback for the entire trend at 84 points to the 3070 low. This is typical for a subsequent retrace to exceed the prior fourth wave when the fifth is smaller than the first. SPX set up a positive divergence off that low on Tuesday, which preceded the strong rally into Friday to another qualified wave at 3151. Given the inflection point mentioned in the previous section, we’re counting the 3070 low as either Nano wave a of an ongoing Micro wave 4, or possible Nano wave ii which would suggest a rescale of the prior small waves down one degree. SPX reached extremely overbought level at the highs this week.
Short term support is at the 3121 and 3105 pivots, and resistance is at the 3156 and 3180 pivots.
Have a good week!