REVIEW
The market started the holiday shortened week at S&P 500 2126. After a gap down opening on Tuesday the market dropped to S&P 500 2099. It rallied right back on Wednesday to close the gap, hitting S&P 500 2126. Then it worked its way lower for the rest of the week to close at S&P 500 2107. For the week the S&P 500/DOW lost 1.05%, the NDX/NAZlost 0.40%, and the DJ World index lost 1.4%. On the economic front it was another mixed week. On the uptick: new/pending home sales, consumer confidence/sentiment, and the FHFA housing index. On the downtick: durable goods orders, Q1 GDP, the Chicago PMI, the WLEI, and weekly jobless claims increased. Next week’s highlights are Payrolls, the FED’s Beige book, ISM and the PCE.
LONG TERM: bull market
The S&P 500 just completed its seventh month trading within a 162 point range: 1973-2135. During this period there have been two downtrends and two uptrends, with the second uptrend still underway. One has to go back to 2012 to see such a narrow point range in this bull market. When that year was done, the year that followed, 2013, was one of the best of the entire six year bull market. For now, however, it looks like the market needs one more downtrend before it can start generating those types of returns again.
The long term count remains the same. A six year Cycle [1] bull market which will probably last eight years. Two Primary waves completed in 2011, and Primary III still underway from the October 2011 low. Major waves 1, 2, 3 and 4 completed with Major wave 5 underway. We are still expecting Major wave 5 to subdivide into five Intermediate waves into 2016. Currently the market is still in Intermediate wave i.
MEDIUM TERM: uptrend may be rolling over
For the past three months this market has been a day traders dream. It has spent three months within a 95 point trading range: mostly drifting to the upside with several larger pullbacks along the way. From an Elliott Wave perspective it has been somewhat of a nightmare. Every rally starting impulsive then ending corrective. As we have noted many times in the past. We do not look for triangles, either leading, ending or corrective to unfold, until they become obvious. The current leading diagonal triangle has been obvious for at least a month. We have been offering that count on the S&P 500 daily chart.
Last weekend we posted the market had reached an inflection point. There was a potential choppy impulse pattern unfolding, if the market broke out to the upside. We posted it on the hourly chart. This week the market did not break out, it declined. We now feel that count can be discarded since the rally from the May low at S&P 500 2068 also looks corrective. So with the leading diagonal triangle for Intermediate wave i now looking complete, we reviewed the charts looking for any negative supporting evidence. We found quite a bit.
We had been noting that the monthly RSI was displaying a negative divergence, and the MACD had turned negative. In addition to that the weekly RSI/MACD are displaying negative divergences. Now we can add a negative RSI divergence on the daily S&P 500, NAZ and NDX charts. In addition, the R2K and NYAD (market breadth) have joined the PHLX Housing and DJT in confirmed downtrends. On the international front. Of the eight Asian markets we track only China and Japan are still in uptrends. In Europe, the only market in an uptrend, of the eight we track, is oddly Greece. It appears, if ones government is not buying stocks or tapping out their credit, your market is in a downtrend.
When the downtrend does get confirmed we expect it to find support at the low S&P 500 2040’s or worse case the 2019 pivot. A 61.8% retracement of the entire uptrend occurs at S&P 500 2040. Once that occurs we would then expect a new uptrend, Intermediate wave iii, to take the market impulsively to new highs. Medium term support is at the 2085 and 2070 pivots, with resistance at the 2131 and 2198 pivots. It is interesting how the OEW 2131 pivot range (2124-2138) has halted this uptrend twice in the past four weeks.
SHORT TERM
As noted above, we offered the option of this choppy uptrend turning impulsive if the rally from S&P 500 2068 made new highs. On Tuesday the market immediately overlapped the potential impulse waves making the entire rally corrective yet again. As a result we see the leading diagonal triangle scenario as clearly the most obvious and probable count.
From the expected uptrend high at S&P 500 2135 we can count an ‘a’ down to S&P 500 2099, then a ‘b’ wave rally to 2126, followed by a ‘c’ wave underway to 2105 so far. We can not be sure about the wave degree until we see more market activity. Short term support is now at S&P 500 2096/99 and the 2085 pivot, with resistance at S&P 500 2117/22 and the 2131 pivot. Short term momentum ended the week nearing oversold.