Provided by the OEW Group
December 21, 2019
Last Monday started with a sharp rally on positive trade news. After closing at 3169 the previous week, SPX jumped to 3198 and then spent the rest of Monday through Wednesday churning between 3191 and 3198 amid pre-impeachment uncertainty. Thursday saw the market move out of the consolidation range to the upside in a breakout move that carried to 3226 on Friday. SPX finished the week at 3221, another all-time closing high for the day and the week.
For the week the SPX/DOW gained 1.65%/1.14 and the NDX/NAZ 2.25%/2.18%.
Economic reports continued to come in quite positive, all above jobs and housing data. Job openings were up 7.3m vs 7m, and weekly jobless claims came in 234k vs 252k. The constant improvement in housing starts (annualized 1,365k in Nov. vs 1,323k in Oct. vs 478k at April 2009 low), accompanied by a new yearly high in home builder sentiment (HMI 76 vs 71 in Nov.), and a decline in existing home sales by 1.7% in November because of low inventory levels could be a sign, that the housing market has bottomed. Further positive or inline reports: industrial production (1.1% in Nov. vs. 1.08% in Oct.); capacity utilization (77.3% vs. 76.6% in Oct.); Empire State Manufacturing Survey (3.5 vs 2.9 Nov); leading indicators unchanged; Michigan Consumer Sentiment (99.3 vs 96.8 in Nov.); PCE index (0.2%; ex food and energy 0.1%); Q3 GDP unchanged at 2.1%, even though Atlanta Fed forecasts Q4 GDP at 2.3%. WLEI was flat at 2.19%, but Philadelphia FED Business Outlook came in 0.3 vs 10.4 in November.
Coming Christmas week is light on economic data, with new home sales released on Monday, durable goods orders on Tuesday, and jobless claims and investor confidence on Thursday. Merry Christmas all!
The slow but steady improvement of the economy is reflected by the WLEI Index, which has been rising for a while and stayed at 2.2 for two weeks in a row.
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. With this weeks continued move to new all time highs we feel the market has gone high enough and continues to look impulsive enough to eliminate the bearish count we’ve previously carried on the DOW.
MEDIUM TERM: Uptrend extends
SPX reached yet another all-time high at 3226 this week, as it broke out of the inflection point that we’ve been discussing since the last significant pullback early this month. SPX gapped over 3206 on Friday, which solidified another subdivision higher for the Micro wave 3 uptrend that’s been ongoing from the early October low at 2856. As a result, our medium term status has been updated and the daily chart was rescaled to reflect seven qualified subdivisions, which suggests this uptrend has at least a couple more waves to go before it’s complete. The December rally from 3070 has gained 156 points in 13 trading days without a meaningful pullback. This price trajectory is very similar to that achieved at the beginning of this uptrend. Micro wave 3 now exceeds the nominal target for an extended third wave at 1.618x ratio to Micro wave 1, which sets up 3250 and 3380 as next likely targets for completion. There are several possibilities to consider near term, including additional subdivisions or a small third wave, so we’re waiting for further price action to sort that out. A retrace back to overlap 3154 would warn of another subdivision, while below 3070 would likely end this uptrend. This extension also suggests Minute wave iii to go beyond the 3300 target previously reported. Next target for that is 2x Minute-i, which projects above 3400. As mentioned last week, some of our members are watching NAZ for a possibility that the December rally is a fifth wave, which could signal an earlier ending.
Our short term count was updated to reflect changes discussed in the previous section. We have five qualified waves up from 2856 to 3154, with a large third wave, and that entire sequence now becomes Nano wave i subdivided with Pico waves 1 thru 5. From there, we have Nano wave ii at 3070, followed by Nano wave iii ongoing to 3226. We’re watching to see if this potential Nano third wave can reach our next pivot at 3256, which would be further confirmation for this wave count. Nominal target for this wave structure would be third equal to first, which gives about 3370. However, it’s possible that a small third wave could stop short of that and limit the upside for this pattern. We’re waiting for the next qualified pullback to help clarify the picture. SPX blew through the negative divergence last week, reached extremely overbought at the high and finished the week just inside the neutral zone.
Short term support is at the 3210 and 3180 pivots, while resistance is at the 3256 and 3278 pivots.
Due to the holidays there will most likely be a one to two week break in the reports.
Happy Holidays and Have a good week!