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S&P
500 Index (SPX) Chart Analysis
Last week:
"When we have a
rally after steep losses, one of the
things we look for is follow-through.
Does the stock market continue its advance
the following day? Without follow-through
the rally is suspect. The odds increase
that it is a dead-cat bounce."
This week:
The steeper the fall the
bigger the bounce back. But what happens
after that bounce? That is where we are
now.
After a decline of -11.4%, this week
the S&P 500 Index (SPX) bounced back
+2.32%. The index almost made it to its
200-day moving average line on Friday
before turning lower and closing with
a one-day loss of -0.63%.
We expect the 200-day line to act as
resistance. There is a long way to go
before this selloff becomes history and
another test of the lows is likely.
Only Monday of this week the SPX rallied
at the open to gain +1.8% before reversing
midday, and declining to a full day loss
of -0.7%. Close to a 3% daily trading
range from high to low, ending with a
very bearish close.
When looking at the rally days and wishing
you had entered for just one or two of
those rallies, remember Monday. It is
likely to happen again and you never know
ahead of time on which day it will occur.
Over the past weeks we have discussed
the potential of an Elliott Wave top.
The weekly chart of the SPX has been labelled
with this wave series for months.
Basically we could well be starting a
correction that would be expected after
a five wave Elliott Wave pattern is completed.
This has been a two year pattern and
it certainly looks like wave 5 may well
have been completed.
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A decline after such a five wave pattern
could be expected to erase up to 61.8%
of the gains.
That is a worst case scenario and it
might not even happen. But the potential
for substantial declines is something
to be watching for.
The extreme weakness in breadth is disturbing.
Look at the lows reached in the NYSE
Advance-Decline Line last February. Compare
that decline to this decline. We are
at almost double the losses.
And this time the 200-day moving average
line was breached.
Yes this week the A-D line is rising,
but it remains way down near its October
lows and there is no indication that
the selling has ended, only that we are
bouncing after a steep loss and extremely
oversold market.
We wrote about the loss on Monday for
the SPX. But what happened to the Nasdaq
100 Index (NDX) on Monday.
The Nasdaq 100 Index (NDX) closed the
previous Friday at 6852. The NDX gapped
up at the open on Monday to 6954 and
rallied to 6973, a +1.8% gain.
By the close on Monday those gains had
been completely erased and the NDX closed
at 6714. For the full day a loss of 2.0%.
Something to keep in mind when thinking
about a short-term bullish entry.
The number of stocks in the NYSE trading
above their 200-day line broke well below
the February-March lows two-weeks ago.
At the lows only 26% of stocks in the
NYSE Composite Index of 1600 stocks were
still above their 200-day moving average
lines
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This week with the three rally days
this chart improved.
But it only made it to 31.83% of stocks
in the NYSE above their 200-day lines.
This is what you would see in a bear
market and we are only just now in
correction territory.
Lastly we look at the daily chart
of small caps using the Russell 2000
Index (RUT).
We have been writing about the bearish
divergence between big cap and small
cap stocks for several weeks.
Bearish divergences are almost always
a bearish indicator. We have been in
a cash position in small caps since
September 18th.
The chart tells a simple story. Yes
small caps rallied this week. But they
were down some 16% from their highs.
Extremely oversold.
This week's big rally still leaves
small caps some -12% from their highs.
Big cap indexes will not start a sustained advance
without small caps.
What are other market analysts saying?
Michael Wilson, Morgan Stanley’s
chief U.S. equity strategist,
said, during an interview on CNBC
midday Thursday, that a then-current
market rebound belied a market that
is badly damaged and ready to sink
further.
Wilson describes current conditions
as a “rolling bear market,” which
began in February, and predicted that
the S&P 500 index SPX, -1.73% could
fall to between 2,450 and 2,500.
That represents a roughly 8% to 10%
drop from the broad-market benchmark’s
current levels. “And we think
we get there in four to eight weeks,” Wilson
said.
Prominent market technician
Ralph Acampora says the
stock market is in bad shape and
it’s worse than many on Wall
Street investors appreciate. “I’ve
been a bull for a long, long time
and like everyone, I was waiting
for a correction but this is something
different,” said Acampora,
who many chartists refer to as the “godfather” of
technical analysis.
“Honestly, I don’t see
the low being put in yet and I think
we’re going to go into a bear
market,” he said. He speculates
that the market may not be healed until
around the first quarter of 2019.
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No more upset
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We profit year after year after year. In fact, we have been timing
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Regularly
Followed Weekly Charts
NYSE Advance-Decline
Line
The NYSE A-D Line has broken below
important support at its 50-day average
line and last week broke below and
closed below its 200-day line.
This week the A-D line managed to
close above its 200-day line.
MACD has posted a bullish crossover
but is now deep in bearish territory
for the first time since March.
The Nasdaq 100 Index Advance-Decline Line remained below its 50-day average
and MACD has fallen into bearish territory. MACD has made a short-term bullish
crossover but weekly MACD remains bearish.
Last week the NDX A-D line rallied
up to its 50-day average but then again
fell. This week's rally has done the
same thing with, so far, a failed test
of resistance.
CBOE Volatility
Index (VIX)
The CBOE Volatility Index (VIX) declined
this week as would be expected with
stock market gains. This week closed
at 19.51.
At one point in October VIX reached
a low of 11.34. That was a red flag
followed by the October stock market
declines.
Market Internals
The number of stocks trading above
their 200-day average fell steeply
last week but with this week's rally
advanced to 31.83% of NYSE stocks above
their 200-day line.
The losses substantially exceeded
the February-March selloff which is
a big concern.
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No more upset
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31.83% is still a very
low number.
Consider that fully 68.17%
of the 1600 stocks on the NYSE remain "below" their
200-day line.
This decline is pointing
to potentially much lower lows in coming
weeks.
Sentiment Indicator
This is a contrarian
indicator. Typically, when advisors
are mostly bullish, the markets are
often near a top.
Note that these numbers
are from a week ago. They reflect
the preceding week's sentiment.
The
number of bulls remains high. Remember
that those who are neither bullish
nor bearish have bullish positions
and really should be considered bullish.
Add bulls and those not specifically
bearish and you get 80.2%
with at least some bullish market positions.
Fibonacci Support
/ Resistance Levels
We are now looking at "support
levels" from the correction lows.
Fib support levels on the weekly chart
are as follows; the 38.2% retracement
support at 2508, the 50% retracement
support at 2375 and the critical 61.8%
retracement support at 2242.
Market Moving
Economic Reports Released this Week:
The S&P/Case-Shiller 20-city index
rose a seasonally adjusted 0.1% and
was 5.5% higher compared to its level
a year ago, the lowest annual increase
in 20 months. Annual gains dipped below
6% for the first time in 12 months,
according to the closely-watched index
of home prices.
Americans’ confidence in the
U.S. economy stood at an 18-year high
in October, suggesting the recent slump
in the stock market has not dimmed
their optimism. The consumer confidence
index rose to 137.9 this month from
a revised 135.3 in September, the Conference
Board said Tuesday.
Same store sales were up 5.9 percent
year-on-year in the October 27 week,
accelerating by 0.4 percentage points
from the prior week's growth pace.
Month-to-date sales versus the prior
month were up 0.1 percent, while the
full month year-on-year gain rose marginally
from the prior week to 5.7 percent.
Redbook's same store year-on-year sales
growth remains exceptionally strong
and points to strength in ex-auto ex-gas
retail sales.
The S&P/Case-Shiller 20-city
index rose a seasonally adjusted 0.1%
and was 5.5% higher compared to its
level a year ago, the lowest annual
increase in 20 months. Annual gains
dipped below 6% for the first time
in 12 months, according to the closely-watched
index of home prices.
U.S. employment costs rose by more
than forecast in the third quarter
as increases in private wages and salaries
accelerated, indicating workers are
gaining leverage in a tightening labor
market. The employment cost index,
a broad gauge monitored by the Federal
Reserve, increased 0.8 percent in the
July-September period from the prior
quarter, according to a Labor Department
report Wednesday.
Companies in October added the highest
number of workers in eight months to
U.S. payrolls, topping estimates and
signaling the job market remains solid,
according to data released Wednesday
from the ADP Research Institute in
Roseland, New Jersey.
The U.S. Treasury Department announced
debt sales will surpass levels last
seen when the country was digging out
of its worst economic crisis since
the Great Depression. This time around,
fiscal stimulus is adding fuel to an
already growing economy. A ballooning
budget shortfall -- fueled by tax cuts,
spending hikes and an aging population
-- is driving the U.S. Treasury to
raise its long-term debt issuance at
its quarterly refunding auctions to
$83 billion from $78 billion three
months ago, the department said Wednesday.
October was a very healthy month for
the labor market based on jobless claims
data which show very little effect
from Hurricane Michael. Initial claims
edged 2,000 lower in the October 27
week to 214,000 with claims in both
Florida and Georgia, the two states
directly affected by the mid-month
storm, falling roughly 4,500 combined
to largely reverse the 7,000 increase
in the prior week.
Led by a sharp increase in new orders,
composite growth in October's PMI manufacturing
sample is steady and solid at 55.7
vs 55.9 at mid-month and 55.6 for final
September. New orders came in at a
5-month high despite only fractional
growth in export sales. Production
rates extended their strong growth
pace while employment posted a 10-month
high as the sample tries to clear backlogs
in expectation of further growth in
new orders.
A big upward revision to August offsets
a no-change headline for September
construction spending. But year-on-year
rates tell the story, up a sharp 7.2
percent in September and 7.4 percent
in August. Less fortunately for Realtors
and home builders, however, the report's
strength is not centered in residential
investment which nevertheless is up
5.1 percent from September last year.
Spending on new multi-units are September's
housing headline in this report, surging
8.7 percent in the month for a yearly
gain of 8.2 percent. But single-family
homes look soft, down 0.8 on the month
and up only 3.1 percent on the year.
The nation’s trade deficit rose
1.3% in September to a seven-month
high as imports set a fresh record,
confounding efforts by the Trump White
House to bring deficits down. The deficit
edged up to $54 billion from a revised
$53.3 billion in August, the Commerce
Department said Friday.
In a very strong showing in which
wage pressures may be less severe than
they look, October's nonfarm payroll
growth easily surpassed expectations,
rising 250,000 in the month and with
strength centered in two sensitive
components to economic pivots: manufacturing
with a much higher-than-expected 32,000
gain and professional & business
services where payrolls rose 35,000.
And available labor in construction
is now more scarce with payrolls here
up a very sharp 30,000.
Up a higher-than-expected 0.7 percent,
factory orders in October added to
September's very strong gain which
is now revised 3 tenths higher to 2.6
percent. October's increase for durable
goods, also at 0.7 percent, is revised
1 tenth lower from last week's advance
report with orders for non-durable
goods, which are the fresh data in
today's report, up 0.6 percent reflecting
gains for petroleum and chemical products.
Conclusion:
After last week's -3.94% loss for
the SPX, the index started this week
in an extremely oversold position.
Even so, the SPX in a very volatile
Monday, managed to lose an additional
-0.7%.
Tuesday through Thursday saw gains
and continued extreme volatility. The
correction does not feel at all to
be over.
The potential that we have finished
a two-year bullish 5-wave Elliott Wave
pattern (weekly chart below). If this
is correct, the decline that follows
truly could be substantial.
The SPX portion of this
strategy is BEARISH. Aggressive traders
should be in CASH (money market funds).
S&P 500 Index (SPX) Daily Chart
S&P 500 Index (SPX), Weekly Chart
Nasdaq 100 Index (NDX) Chart Analysis
Last week we wrote:
"Even after a solid
rally on Thursday, the Nasdaq 100 Index (NDX)
managed to lose -3.59% for the full week. The
200-day moving average line was decisively broken
this week and the NDX closed well below this
line on Friday."
This week:
The Nasdaq 100 Index (NDX) lost -3.59% last
week. On Monday of this week, after initial +1.8%
gains, the NDX closed the day with an additional
-2.0% loss.
This is not a time to be picking a bottom.
The 200-day moving average line was decisively
broken last week and the NDX remained below this
line on Friday.
Though there were three rally days this week
there were also two declining days. The -2.0%
loss on Monday and a - 1.47% loss on Friday.
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Sleepless
nights as your investments are consumed
by a volatile Wall Street?
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trend trading services. Our trading
plans are unemotional and are always
invested with the trend, which
ever way it is headed.
Fibtimer's
timing strategies MAKE
MONEY in BOTH advancing & declining
markets. No more sleepless nights.
No more upset stomachs.
We profit year after year after year. In fact, we have been timing
the markets successfully for over 25 years.
Join us and start winning!
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For the full week the NDX managed to close with
a +1.65% gain. But that was after a new correction
low was made on Monday.
Breadth indicators improved a bit but remain near
their lows.
MACD on the volatile daily chart is now deep in
bearish territory though it had a bullish crossover
for the week.
On the weekly chart MACD remains in bullish territory
but has posted a sharply bearish crossover.
We have posted Fibonacci retracement "support" levels
for the advance from the February 2016 lows. Those
Fib support levels (weekly chart) are; 38.2% at
NDX 6256, 50% at NDX 5804 and 61.8% at NDX 5352.
Conclusion:
The NDX was a leader until early October. Looking
at the daily chart the NDX hit a high in the end
of August and then tested that high in the end
of September.
This test of the highs failed and has created
a bearish double-top.
Last week the 200-day line was broken to the downside.
This week the NDX was unable to close above this
level which now becomes resistance.
Breadth is poor with the A-D line well below its
50-day average line.
The NDX portion of this strategy is BEARISH. Aggressive
traders should be in CASH (money market funds).
Nasdaq 100 Index (NDX), Daily Chart
Nasdaq 100 Index (NDX), Weekly Chart
|