Provided by the OEW Group
December 14, 2019
SPX closed Dec. 6 at 3146 after a weekly high at 3151. This week opened unchanged, but then drifted lower in front of the Wednesday Fed meeting. Tuesday and Wednesday ranged between 3127 and 3143 before exploding higher on Thursday’s open in reaction to renewed US-China trade optimism. After reaching a new all-time high at 3176, profit-taking and nervousness dropped the market back to retest old high 3151 before bouncing once again. Trade talks, UK elections and impeachment proceedings generated volatile action that carried the market to a new all-time high at 3182 on the Friday open before finishing the week at 3169.
For the week, SPX/DOW gained 0.73/0.43%, while NDX/NAZ gained 1.08/0.91%
No big surprises on the economic front. As expected, the FOMC maintained the federal funds rate at 1.5-1.75%. The real news came during the press conference, when FED Chair Powell signaled to keep rates unchanged in 2020 even if the 2% inflation target should be met or slightly exceeded for a short period of time.
Most economic reports were stable or moderately to the upside: NFIB Small Business Optimism Index (104.7 vs 102.4); CPI (0.3% vs 0.4%), up 2.1% YoY, and core CPI (0.2%) in line with expectations; PPI unchanged; import prices up 0.2%, but down 1.3% YoY, and business inventories increased 0.2% in October vs -0.1% in September. Weekly jobless claims though, rose to 252k from 203k last week, and retail sales declined slightly to 0.2% vs 0.3% last month.
The slow but steady improvement of the economy is reflected by the WLEI Index, which has been rising for a while and made a yearly high last week at 2.4%. It is now at 2.2%.
Next week’s reports are: Empire State Manufacturing Survey, Housing Market Index, housing starts, industrial production, capacity utilization, JOLTS, weekly jobless claims, Philadelphia FED Business Outlook, leading indicators, existing home sales, GDP, Michigan Consumer Sentiment, corporate profits, personal income, consumer spending and Kansas City Manufacturing Index.
SECULAR CYCLES: Revisiting 100-years of OEW by Tony Caldaro
A classic chart, just as a great painting, will stand the test of time. Such is the case with the 100-year DOW chart Tony Caldaro posted here on the public blog on October 21, 2017. The chart reveals, like any masterpiece, many levels of information. Primarily, it shows his Objective Elliott Wave count for over 100 years of stock market price and time. Second, it identifies a Saeculum. A Saeculum is a long-term cycle that has existed throughout history. It lasts on average about 75-80 years and consists of four phases or turnings, each one about 15-20 years. Notice these secular cycles have averaged about 17 years each going back to a Grand Super Cycle top in 1929. All bull and bear market cycles within these secular periods have been fully quantified by objective analytic methods, with no exceptions. This is the essence of OEW. For simplicity of presentation, the chart summarizes bull and bear cycles down to Primary scale only.
Tony was both, knowledgeable about the Saeculum and had his own method of analyzing the stock market, which he coined Objective Elliott Wave (OEW). One of Tony’s master strokes was to identify the turnings of the Saeculum using the stock market via his OEW approach. His conclusion was that in February of 2016 the stock market made a Primary wave II low at SPX 1810, which he also identified to be an inflection point and the beginning of the next turning in the Saeculum. Tony unified the Saeculum and the stock market via OEW. Thus, in 2017 when most believed the economy and stock market were late cycle, Tony forecasted the stock market was just beginning an OEW Primary III wave which should last about 17 years (the length of the previous OEW Primary III wave) and coincide with a Saeculum growth cycle. It is a chart and forecast that has survived the test of time. At OEW we continue to monitor and hopefully build on the work of Tony Caldaro. We have recently observed that the previous Primary III wave, which began in 1982, was about 25 years after the Baby Boom birth rate high of 1957. The next cycle, suggest the current OEW Primary III wave began in 2016 about 25 years after the Millennial peak birth rate of 1989.
What does all this mean? If our beloved maestro’s thesis is correct, and we think it is, then it projects DOW 100K by 2032/33.
The link to Tony’s original Weekend Report post, you will find below.
LONG TERM: Uptrend extension continues
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 1 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. We maintain our bearish alternate count as posted on DOW in the public chart list, though its probability continues to drop as the market goes higher.
MEDIUM TERM: Uptrend testing possible extension
SPX continued to rally off the previous week’s low and achieved another all-time high at 3183 by early Friday morning. Our 3180 pivot became both a magnet and stop sign for the price action the week. This gives the second largest rally for this uptrend of 113 points, without a meaningful pullback. We can now count seven qualified subdivisions from the downtrend low at 2856. This latest rally puts pressure on a potential breakout of the inflection point mentioned last week. We’re still waiting for a break above 3200 to signal an extension of this uptrend. Until then, our wave status remains unchanged. Some in our group have suggested an alternate analysis such that Nano wave iv (as shown) was too small to be considered and should be replaced with Nano wave iv at 3070. This different view suggests the uptrend may be working on the fifth significant wave up off the low. There’s some merit to this idea as the NAZ may be signaling a similar characteristic, however we’re sticking with our existing metrics until further wave action clears up the picture. SOX reversed this week to a new uptrend while TRAN remains in a confirmed downtrend, another sign the trend may be strengthening. Either way, our target for Minute wave iii remains unchanged at 3300 by early next year.
Our short term count continues to align 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. From there, we have two more waves, 84 points down 3070, followed by 113 points back up to 3183. It’s unclear whether the recent rally is Nano wave b of an ongoing Micro wave 4 or the beginning of a third wave extension. Our upper limit for Nano wave b would be 1.618x Nano wave a, which gives 3206. If/when that region is breached, we will update our wave count accordingly. SPX ended the week with a negative short term divergence, which suggests another pullback may be on the horizon.
Short term support is at the 3156 and 3121 pivots, while resistance is at the 3180 and 3210 pivots.
Have a good week!