Weekend update

REVIEW

The week started at SPX 2840. After a flat opening on Monday the market rallied to a new uptrend high at SPX 2863 by Tuesday morning. After that the market went sideways for two days before heading lower late Thursday into Friday. For the week the SPX/DOW lost 0.45%, and the NDX/NAZ gained 0.30%. Economic reports for the week were light and mixed. On the downtick: consumer credit, plus the budget deficit widened. On the uptick: wholesale inventories, the CPI, plus jobless claims improved. Next week’s multitude of reports will be highlighted by industrial production, retail sales, and housing starts/building permits. Best to your week!

LONG TERM: uptrend

At the beginning of the new administration the US started working with our trade partners to re-write trade agreements. None of them have been too interested. This year the US has tried to get things moving along by enforcing tariffs on some imported goods. Still not much progress has been made on trade, except for countries initiating counter-tariffs. Our biggest trading partner, China, has been quick in initiating counter-tariffs. Also has refused to even discuss trade, and has been quite vocal in criticizing the US for even suggesting change. We decided to look further into this trade relationship to see why China is determined to fight any changes.

Internationally, China imported from around the globe in 2017 $1.841 trillion worth of goods. They exported globally in 2017 $2.272 trillion worth of goods. Simple math equates to a trade surplus of $431 billion in 2017. http://www.worldstopexports.com/chinas-top-10-imports/, and http://www.worldstopexports.com/chinas-top-10-exports/.

From 1985-2017 China has run a trade surplus with the US. This trade surplus has increased every year except for three: 2001, 2009, and 2016. All bear market years for equities. In 2017 China exported to the US $505.47 billion worth of goods. China imported from the US $129.89 worth of goods. Simple math equates to a trade surplus of $376 billion of goods with the US. https://www.census.gov/foreign-trade/balance/c5700.html. As you can clearly see nearly all of China’s worldwide trade surplus (88%) is with the US. It is no wonder they are absolutely unwilling to change anything. This trade dispute is likely to become front page news in the months ahead.

The long term count remains unchanged. A Major wave 1 bull market underway since early 2016. Bullish major waves divide into five Intermediate waves. Intermediate waves i and ii completed in the spring of 2016, and Intermediate waves iii and iv in the spring of 2018. Int. wave i was simple, and Int. wave iii subdivided into five Minor waves 5. Int. wave ii was an irregular zigzag, and Int. wave iv a flat. A classic Elliott wave pattern of extensions and alternation. Intermediate wave v has been underway since early April. Still expecting a bull market high of SPX 3000+ by 2018+.

MEDIUM TERM: uptrend

After four Intermediate waves, Intermediate wave v began with little fanfare in early April. The activity from the SPX 2554 low to mid-June’s SPX 2791 was a choppy five waves up that looked more correctional than impulsive. Other indices like the DOW and the NYSE, suggested that entire advance was a leading diagonal triangle. We have maintained that count on those charts, but decided on a more creative count for the SPX. Nevertheless, both counts imply the same thing: a Minor wave 1 up until mid-June, then a Minor 2 into late-June.

After the Minor 2 low at SPX 2692 we were looking for an impulsive Minor wave 3 to begin. We were not disappointed, as the early stages of Minor 3 rallied in five waves from SPX 2692-2863. At Tuesday’s SPX 2863 high there were negative divergences on the SPX hourly/daily charts, and we suspected a significant pullback was next. The market held up until late Thursday before heading lower into Friday. When this decline concludes the uptrend should make new highs, and the SPX new all-time highs.

SHORT TERM

After completing Minor wave 2 in late-June, the SPX rallied in five waves to 2863: 2743-2699-2848-2796-2863. This looks like it was just Minute wave i of Minor wave 3, and the recent decline is Minute wave ii. Significant pullbacks during this uptrend have been between 65 and 122 points. This would suggest a minimum decline into the SPX 2790’s is underway. SPX 2796-2798 was also the 4th wave of a lesser degree, and 2691 was the high of Minor wave 1. Technically there would appear to be, in addition to the 2798 pivot, lots of support in the SPX 2790’s.

Current short term support is at the 2798 and 2780 pivots, with resistance at the 2835 and 2858 pivots. Short term momentum ended the week oversold. Best to your trading!

FOREIGN MARKETS

Asian markets were mixed on the week but gained 1.1%.

European markets were all lower and lost 1.6%.

The DJ World index lost 0.8%, and the NYSE lost 0.8% as well.

COMMODITIES

Bonds appear to be in an uptrend and gained 0.6%.

Crude is in a downtrend and lost 1.3%.

Gold remains in a downtrend and lost 0.3%.

The USD is in an uptrend and gained 1.3%.

NEXT WEEK

Tuesday: export/import prices. Wednesday: retail sales, the NY FED, industrial production, capacity utilization, the NAHB and business inventories. Thursday: jobless claims, housing starts, building permits, and the Philly FED. Friday: consumer sentiment, and leading indicators. Best to your week!

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