Weekend update

REVIEW

Very volatile week. The market started the week at SPX 2768. After a gap up opening on Monday, and hitting SPX 2779 in the opening minutes, the market headed south. A gap down opening on Tuesday carried the SPX to 2691 in the first hour of trading. Then the market rallied all the way back to SPX 2754 by the last hour of trading. Wednesday had a quiet open, and then the market sold off to SPX 2652 by the last hour of trading. Then a gap up opening on Thursday carried the SPX all the way back to 2723 in the last hour of trading. Friday’s gap down opening took the market down to an even lower low at SPX 2628. And just as quickly it rallied to SPX 2692. Naturally it headed lower after that and ended the week at SPX 2659. Summary: 2779-2691-2754-2652-2723-2628-2692. For the week the SPX/DOW lost 3.45%, and the NDX/NAZ lost 3.70%. On the economic front, reports were mixed. On the downtick: new home sales, consumer sentiment, plus the trade deficit and weekly jobless claims moved up. On the uptick: Q3 GDP, durable goods and pending home sales. Next week’s reports will be highlighted by monthly Payrolls, ISM and personal income/spending. Best to your week!

LONG TERM: downtrend probable

After months of speculation as to what could cause a downturn in the stock market it has now become quite clear. It is not all the partisan rhetoric coming out of Washington, DC. It is the potential worldwide economic slowdown due to tariffs. The first tariffs initiated by this administration were back in January. Many additional tariffs have followed. Back in January the US market sold off 12%, and all of these market indices topped: China, Germany, Hong Kong, S. Korea, Switzerland, the DJ World index, and the NYSE. Why would the NYSE top with the rest of the world’s indices, and not the US? It’s more of an international index than it is a US index.

During the summer we had been warning that the Asian and European markets looked quite weak. China had already confirmed a bear market, and Switzerland (which usually tops months before the US) had already topped. In fact, all but two of the international markets we follow looked like they had topped. We now have Canada, Germany and Spain, joining China in confirmed bear markets.

While all this was unfolding we kept stating that the US indices needed one more new high to potentially complete the bull market from February 2016. After a six month uptrend the highs occurred in September/October, and then the market confirmed a downtrend a couple of weeks later.

MEDIUM TERM: downtrend

For the past few months we have been noticing a weakening Asia/Europe and a struggling uptrend in the SPX. We noted, historically, the final uptrend of a bull market that struggles usually tops with marginal news highs. The SPX only managed a 2% higher record close, and the DOW a 1%. We had a bull market target of 3000+ in 2018+. Got the year right, but fell short on price by about 2%. Considering the bull market started at SPX 1810, that 2016 target worked out fairly well. Now what?

Before the DOW topped in October the NDX/NAZ had already confirmed downtrends. Joining the numerous downtrends elsewhere. The SPX/DOW confirmed downtrends shortly thereafter. Last weekend we offered several downside targets for this downtrend SPX: 2675, 2656, 2632, 2594 and 2587. The middle three are pivots, and the first/last are Fibonacci calculations. The market then wasted no time heading towards those levels starting on Tuesday.

The first stop was SPX 2691, (not one of the numbers), on Tuesday. That level was the Minor 2 low of the uptrend. After the low a 63-point rally followed on Tuesday. The second stop was SPX 2652 (2656 pivot) on Wednesday. Then the market rallied 71-points (2731 pivot) into Thursday. On the Friday the third stop occurred at SPX 2628 (2632 pivot) then the market rallied 64-points. All three clear identifiable lows were followed by huge 60+ point rallies. Day traders dream activity!

Looking further out. When this downtrend ends it should be followed by an a-b-c uptrend. Then another downtrend that will possibly end the bear market. This would be a somewhat simple a-b-c for Major wave 2. Major wave 2 may also be more complex: abc-x-abc, or a double three. In either case we’re not looking for a bear market low until early 2019.

SHORT TERM

Initially we all thought the market would offer an orderly decline for this wave A downtrend. This week’s activity throws that assumption to the wind. This market is acting like 3%/4% moves mean nothing. The only short term count we can currently offer is on the hourly/daily charts: an a-b-c down. The first decline was 230 points (2941-2711). Then after a bounce to SPX 2817, the current decline is 189 points (2817-2628). About 41 points away from being equal: which is SPX 2587. This also happens to be in the range of the next lower pivot: 2594. If the market continues its 100-points drops, followed by 60+ point rallies, the 2594 pivot could be next and last for now.

Technically the market continues to display positive divergences during these declines. We now have a double positive divergence on the SPX/DOW hourly charts. And positive divergences on all four major indices daily charts. They have not worked thus far, except to set up sharp rallies. But they usually do help identify downtrend lows. Keep an eye on those pivots. Short term support is at the 2656 and 2632 pivots, with resistance at the 2731 and 2780 pivots. Best to your trading!

FOREIGN MARKETS

Asian markets were mostly lower for the week and lost 3.2%.

European markets were also mostly lower and lost 1.6%.

The DJ World index lost 3.9%, and the NYSE lost 3.5%.

COMMODITIES

Bonds appear to be uptrending and gained 0.9% on the week.

Crude continues to downtrend and lost 2.2%.

Gold is still in an uptrend and gained 0.6%.

The USD also remains in an uptrend and gained 0.7%.

NEXT WEEK

Monday: personal income/spending at 8:30. Tuesday: Case-Shiller and consumer confidence. Wednesday: the ADP and Chicago PMI. Thursday: jobless claims, ISM, construction spending and auto sales. Friday: monthly payrolls, trade deficit and factory orders.

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