Current Position of the Market
SPX Long-term trend: Uptrend continues.
SPX Intermediate trend: The correction from 2400
continues,
Analysis of the short-term trend is done on a daily-basis
with the help of hourly charts. It is an important adjunct to the analysis of
daily and weekly charts which discuss longer market trends.
Daily market analysis of the short term trend is reserved
for subscribers. If you would like to sign up for a FREE 4-week trial period
of daily comments, please let me know at anvi1962@cableone.net.
Getting to "B"
Market Overview
There was some uncertainty ahead of the French election which kept the market
in a tight range, but when the results came in, prices exploded upward,
especially with practically everyone endorsing Macron, making Le Pen a
sure-loser in the runoff. Nevertheless, with the cycle lows still well ahead,
the pattern under construction is more likely to be a B-wave than the
resumption of the uptrend to new highs which should follow the C-wave. After
the announcement of the "massive" tax reform plan on Wednesday
(which turned out to be somewhat less than the rhetoric), the
failure of health care plan 2.0 to get enough votes, the one-week-only
extension of keeping the government open, and the disappointing GDP numbers,
it’s no wonder that the rally fizzled by the end of the week. It is
still possible to re-test the high before reversing but, at the very least,
we should fill the gigantic gap on the SPX as wave C, before reaching for new
highs. We must also contend with the jobs report next week. If it is another
disappointment, it would be a perfect trigger to give back some territory, but
the market is very likely to reverse before Friday.
While QQQ continues on its merry way into the stratosphere, there are
signs that the DJIA is beginning to lag SPX. IWM filled its upper gap on
Friday, and TRAN has filled both upper and lower. Arguing for this to be the
conclusion of a B-wave is not too much of a stretch. But we are still trading
in a rising channel and must come out of it in the next couple of days before
wave C reveals itself.
Analysis:
Daily chart
The decline from 2400 which stopped at 2322 is labeled as wave A of the
entire correction. We have either completed or are about to complete wave B
and should soon see the beginning of wave C as we come out of the narrow
channel drawn on the chart -- probably next week. The momentum indicators
still have a little more work to do, so we could first re-test the 2398 high,
or exceed it slightly.
We discussed the inability of the index to make much downside headway
after it broke below its 2084 lower channel line (dashed), and held above the
former near-term low. This opened the door for a possible B wave extension to
the 2400 high. As you recall, our original count for the top was 2400 with a
potential extension to 2410. Is that what we are seeking to fill right now?
Since the B wave may not yet be complete, we’ll have to wait until its
completion to establish a downside count for wave C. With two cycles
remaining to make their lows (the first near the middle of next month, and
the other near the end of the month), we don’t have to be in a hurry to see
the market turn up, and a decline to the support levels discussed earlier is
still possible. Those are near the horizontal dashed red lines and the blue
bottom line of the 1810 channel.
While the momentum indicators could continue their topping process as
prices rise higher, the A/D oscillator has already given a preliminary sell
signal which will be confirmed when the other two join in.
This chart and subsequent ones courtesy of QCharts.com
Hourly chart
Certain features of the chart pattern and indicators are easier to discern
on the 60m chart. To begin with, the enormous gap which occurred after the
results of the French election was followed by a strong consolidation pattern
in the form of a small pennant; and then there was another gap which sent us
into the Tax reform announcement date with a consolidation into the end of
the week. It lasted two days, plenty of time to fill the upper gap and to
reach the bottom channel line! But we did neither, which is a sign of
latent strength, suggesting that another high for the B(?) wave top is
possible, especially since the last spurt in the rally stopped at the very
top channel line with only very minor deceleration showing.
At the same time, the oscillators gave a preliminary sell signal in
unison, but it was only for the consolidation pattern, and they now look
ready to extend the move upward. So that’s the best guesstimate for now. The
degree of accumulation also points to a potential extension of the rally to a
double top at 2398, or even to a slightly new high to 2405. If we start up
first thing Monday morning, we could finish by Tuesday.
An overview of some important indexes (Weekly charts)
As mentioned earlier, the QQQ (top right), which is powered by all the
high-flyers, continues to make new highs and left all the others behind, last
week. IWM (bottom center) also made a new high last week, but quickly
retraced it on Friday, closing its upper gap for good measure. TRAN, (bottom
left) still ranks last, rallying to its former long-term high (red line) and
quickly pulling back. It is the only one to close the larger gap. This is the
one to watch for a long-term trend evaluation of the stock market. It has
proven itself capable of advance-warning in the past, and looks ready to do
it again.
UUP (dollar ETF)
UUP looks as if it is making a triangle wave 4 with the "e" wave
just about complete, before continuing its rally. This would support the view
that there needs to be another high before a larger correction takes place.
What effect this will have on gold is uncertain since gold dropped along with
UUP recently; although bottoming cycles are credited for this decline.
GDX (Gold Miners ETF)
UUP is undergoing a normal longer-term correction which is the result of
bottoming cycles. A small holding period is expected before the last
and largest cycle makes its low, probably completing wave C of the
correction. After that, we can expect that the long-term uptrend will resume.
Note: GDX is now updated for subscribers throughout the
day, along with SPX.
USO (U.S. Oil Fund)
USO has been a disappointment to its bullish supporters. It was expected
to hold at a higher level and challenge the top trend line, with the
possibility of moving to the top of the rising green channel. It still has a
chance to redeem itself if it does not break through the rising trend lines.
Although the top oscillator is showing positive divergence, the two lower
ones are less bullish and suggest that USO could drop to the lower line of
the purple channel before finding its footing.
Summary:
Everything considered, best guesstimate is that SPX should have one more
minor wave up, possibly to 2405, before completing wave B of the larger
correction.
