Weekend update

REVIEW

Serious turn of events this week. The week started at SPX 2886. After a gap down opening on Monday the market traded down to SPX 2862. A rally into Tuesday morning turned the SPX (2895) higher for the week. Then after a lower opening on Wednesday the market started to head south in a hurry. After a gap down opening on Thursday the SPX hit 2711. Then it tried to rebound, and even had a huge gap up opening on Friday, to close the week at SPX 2767. For the week the SPX/DOW lost 4.15%, and the NDX/NAZ lost 3.50%. Economic reports for the week mostly positive. On the downtick: consumer sentiment, plus jobless claims moved up. On the uptick: import prices, CPI/PPI, and wholesale inventories. Next week’s reports will be highlighted by: the FOMC minutes, Capacity utilization, the NY/Philly FED, and housing. Best to your options expiration week!

LONG TERM: downtrend probably underway

For the past several months we had been warning that the market was probably in its last uptrend of the 2016 bull market. For the past several weeks we have been noting that the NDX/NAZ wave patterns looked complete, and the SPX/DOW might have a bit more work to do to the upside. This week the Tech sector bear market took control of the general market and everything sold off. Scale in around bear market lows. Scale out around bull market highs.

With the SPX/DOW joining the NDX/NAZ in confirmed downtrends, we can now count five waves up from early-2016. This suggests, as we have been noting the technical deterioration, that the Major wave 1 bull market ended at the recent highs. We are now expecting a shallow 15% to 20% bear market lasting several months into next year. Bear markets are often quite volatile. And a rally back to SPX 2900 at some point would not be a surprise. After the expected Major wave 2 bear market ends, the Primary III secular bull market will resume.

MEDIUM TERM: downtrend

We have noted the NDX/NAZ had been in confirmed downtrends, and probably bear markets, since early October. This week the SPX/DOW joined the growth sector with confirmed downtrends. We had thought the SPX/DOW had a bit more upside to go. Especially with the SPX nearing our 3000+ in 2018+ target, after a 2016 SPX 1810 low. SPX 2941 was the best it could do. Sixty-two percent in about 2.5 years.

With the first downtrend underway of an expected bear market it is a bit difficult to determine, in advance, how this is all going to unfold. In recent years all the selloffs, (2011, 2015/2016, and 2018) have been quite similar. About a 250+ point decline, a 50% retracement, and then a lower low for wave A. In all three cases that was one downtrend. Then an uptrend retracing about 61.8% of that entire decline. This is probably a good general guideline for starters.

SHORT TERM

The one thing we know for sure at this point is that the SPX has completed five waves up from the early-2016 bear market low. And, is now in a confirmed downtrend with the DOW/NDX/NAZ. We can assume the entire decline will correct some portion of the five wave bull market. Works just like a downtrend correcting some portion of the previous 5 wave uptrend. Only this time the five waves was from February 2016 to October 2018.

Thus far the market has dropped from SPX 2941 to 2711, about 230 points. If this is enough for the first rebound. A rally to around the 2835 pivot would appear to be underway. Keep in mind volatility is king right now. The three potential retracements from 2711 are SPX: 2799, 2826 and 2883. Short term support is at 2731 and 2656, with resistance at 2780 and 2798. Short term momentum rose to about neutral after a positive divergence on Thursday. Best to your trading!

FOREIGN MARKETS

Asian markets were all lower for a 4.6% loss.

European markets were all lower for a 4.5% loss.

The DJ World index lost 4.3%, and the NYSE lost 3.9%.

COMMODITIES

Bonds continue to downtrend but gained 0.5% on the week.

Crude remains in an uptrend but lost 4.0%.

Gold is in an uptrend and gained 1.4%.

The USD is in an uptrend but lost 0.6%.

NEXT WEEK

Monday: retail sales and NY FED at 8:30, then business inventories at 10am. Tuesday: industrial production and the NAHB. Wednesday: housing starts, building permits and the FOMC minutes. Thursday: jobless claims, Philly FED and leading indicators. Friday: existing home sales and options expiration.

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