Weekend update

REVIEW

The week started at SPX 2930. After a gap down opening on Monday the market hit SPX 2913. Then it rallied to 2931 right after the FED raised rates on Wednesday. Immediately after that the SPX dropped to 2903 before a 2906 close. On Thursday the market gapped up and rallied to SPX 2927, before heading down in the afternoon. Friday the market hit SPX 2908, before ending the week at 2914. For the week the SPX/DOW lost 0.8%, and the NDX/NAZ gained 1.0%. On the economic front positive reports were even with negative ones. On the downtick: Case-Shiller, pending home sales, Chicago PMI, consumer sentiment, plus jobless claims rose. On the uptick: consumer confidence, new home sales, durable goods, and personal income/spending. Next week’s highlights: monthly payrolls, the ISMs and auto sales. Best to your week!

LONG TERM: uptrend inflection point

Last weekend we discussed why we feel this bull market is in its late stages. While our target all along has been SPX 3000+ by 2018+, and it still may get there, we’re not one to try and pick the exact top. We scale in when we think a bull market is underway, and scale out when we think it is close to ending.

Since the low in early-April, Intermediate wave iv, the market has struggled to make new highs. It was not until August that the SPX made new highs, and September for the DOW. Typically this is a sign of a weakening trend and impending top. With four Intermediate waves already in the books, and this Intermediate wave v up entering its late stages, a bull market high may occur in the next few weeks/months.

MEDIUM TERM: uptrend

This Intermediate wave v uptrend began in early-April at SPX 2554. Minor waves 1 and 2 completed in June at SPX 2791 and SPX 2692 respectively. Minor wave 3 appears to have completed less than two weeks ago at SPX 2941. And, Minor wave 4, which could drop about 60-100 points, should be underway. Normal support is the previous 4th wave near the low 2860’s, and the 2858 pivot. Once Minor 4 concludes, Minor wave 5 should take the market to new highs to complete Int. v and the Major 1 bull market. After that we are expecting a short-lived, and moderate, bear market to unfold.

Supporting this potential scenario are the negative RSI/MACD divergences in several US indices. A negative divergence on the NYAD breadth. US sectors that look like they have already topped, i.e. NDX/NAZ and R2K. Foreign markets that have already turned down, 12 of the 14 we track, with 3 of them already in confirmed bear markets. It is quite odd that the US has been making new highs, while the rest of the world is heading lower.

SHORT TERM

The recent Minor wave 3 unfolded in five Minute waves: 2863-2802-2917-2864-2941. Notice the third wave was shorter than the first, which limited the upside potential for the fifth wave. If you review the entire uptrend you will observe pullbacks have ranged from 53 to 100+ points. With three of the five pullbacks around 50+ to 60+ points. This is why we expect Minor 4 to range from 60-100 points.

Also of note, the NDX/NAZ have confirmed downtrends. We believe the recent highs were the high for their bull market. However, some in our group prefer the count posted on the NDX charts, suggesting one more bull market uptrend. Either way these two indices are looking toppish as well. Short term support is at the 2884 and 2858 pivots, with resistance at the 2929 and 2995 pivots. Short term momentum ended the week around neutral. Best to your trading!

FOREIGN MARKETS

Asian markets were mostly higher on the week but gained only 0.1%.

European markets were mostly lower and lost 0.7%.

The DJ World index lost 0.7%, and the NYSE lost 1.2%.

COMMODITIES

Bonds continue to downtrend but gained 0.1%.

Crude is still in an uptrend and gained 3.5%.

Gold is in an uptrend too but lost 0.4%.

The USD remains in a downtrend but gained 0.8%.

NEXT WEEK

Monday: ISM and construction spending at 10am. Tuesday: auto sales. Wednesday: ADP and ISM services. Thursday: jobless claims and factory orders. Friday: monthly payrolls, the trade deficit and consumer credit.

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