For Sunday, November 18, 2018                                Go to Website
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S&P 500 Index (SPX) Chart Analysis

Last week:

"Technically speaking, the major indexes have staged an impressive rally from the correction lows, with single-day rallies exceeding 2%. The S&P 500 has pushed above its 200-day moving average, testing that average on Friday and continuing to hold above it."

This week:

On the weekly chart of the S&P 500 Index (SPX) there is a bearish divergence in the latest SPX highs and MACD which did not make new highs.

The below weekly chart shows the new high in the end of September but a failure to make a new high in MACD.

This was a warning of weakness to come.

Add this bearish divergence to the previously discussed potential of an Elliott Wave top.

The above weekly chart of the SPX has been labelled with this wave series for months.

Basically we could 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. 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.

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Although it rebounded from Wednesday's low, the premier stock in the stock market Apple, Inc. (AAPL) officially entered a bear market that day on heavy volume. That is bad news for the bull market as a whole and by itself has caused selling in technology stocks.

Apple lost -5.04% on Wednesday alone.

Some call it a "death cross" and the name alone tells you how it is perceived when the 50-day moving average line of the small-cap Russell 2000 Index (RUT) closed beneath its long-term 200-day moving average.

Many chart watchers believe this is the point that a short-term decline changes into a longer-term downtrend.

This is the first time that the 50-day crossed below its 200-day since May, 2016.

Lastly we look at the breadth charts which are disturbing.

After a brief rally to the 50-day average, the NYSE Advance-Decline Line fell back to its 200-day average and the last two days of this week, when prices improved, are hardly a blip to the upside.

The number of stocks in the NYSE trading above their 200-day line remains near its lows.

Fully 67.3% of stocks in the NYSE Composite Index of 1600 stocks remain below their 200-day averages.

Regularly Followed Weekly Charts

NYSE Advance-Decline Line

The NYSE A-D Line moved up to its 50-day and then reversed lower.

MACD has posted a bullish crossover but remains in bearish territory for the first time since March.

The Nasdaq 100 Index Advance-Decline Line never dropped to its 200-day average and this week managed to regain its 50-day average and close fractionally above.

The break above the 50-day line is good, but the overall chart does not look good.

MACD continues to rise and is nearing bullish territory.

CBOE Volatility Index (VIX)

The CBOE Volatility Index (VIX) closed this week at 18.22.

This level does not give us any hint at where stocks will go next week.

The number of stocks trading above their 200-day average continues to be a concern. Though you can see two weeks of strong gains, still the number of stocks below their 200-day line is very high.

The losses substantially exceed the February-March selloff which is a worry.

32.72% above their 200-day average lines is a very low number.

Consider that fully 67.3% of the 1600 stocks on the NYSE remain "below" their 200-day line.

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 81.0% with at least some bullish market positions.

• Investor's Intelligence Bull vs. Bears as of Nov 13, 42.9% bullish vs. 19.0% bearish.
  Bull vs. Bears in the prior week with 42.5% bullish vs. 19.8% bearish.

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 National Federation of Independent Business small-business optimism index declined 0.5 point to a seasonally adjusted 107.4 in October, a four-month low. The biggest declines of the 10 components that make up the index came from questions on expansion and earnings trends, while the only gain came from plans to increase inventories.

Same store sales were up 6.1 percent year-on-year in the November 10 week, unchanged from the prior week and maintaining the strongest annual growth pace since the 6.5 percent decade highs seen at the start of October. Month-to-date sales versus the prior month were up 0.2 percent, an acceleration of 0.1 percentage points from the prior week, while the full month year-on-year gain rose to 6.1 percent, the fastest pace in 9 weeks.

Rising interest rates continue to dampen mortgage activity, with purchase applications for home mortgages falling a seasonally adjusted 2.3 percent in the November 9 week to the lowest level since February 2017 while refinancing applications decreased by 4.3 percent to the lowest level since December 2000.

Energy prices which are now sliding lifted what is yet another subdued consumer inflation report, this time for October where the headline, at a moderate and as-expected 0.3 percent increase, overstates the pressure. Energy jumped 2.4 percent in October led by a 3.0 percent rise in gasoline prices which appear certain to come down in the November report given the ongoing tumble in the price of oil. The core rate, which excludes energy and also food, came in as expected at 0.2 percent.

Initial jobless claims are steady at low and favorable levels, edging only 2,000 higher in the November 10 week to 216,000 with the 4-week average up only 1,500 to a 215,250 level that is only slightly higher than mid-October.

The first hard indication on what to expect for fourth-quarter consumer spending is positive but not as enormously positive as October's 0.8 percent headline surge in retail sales would suggest. Control group sales, which importantly are inputs into personal consumption expenditures and which exclude categories that were especially strong in October, rose a more moderate 0.3 percent with September for this reading revised 2 tenths lower to also a 0.3 percent gain.

Last week's producer price report showed unexpected pressure in October as does today's report on import prices and export prices, up 0.5 percent and 0.4 percent respectively which both top Econoday's high estimates.

Industrial production edged up 0.1% in October, the Federal Reserve said Friday, but there was a big upward revision that moved third-quarter numbers significantly higher. Capacity utilization fell to 78.4% from 78.5% in September.

Conclusion:

The SPX is back in cash and has again closed below its 200-day average line at the close on Friday. For the full week the SPX lost -1.61%.

The weakness in the breadth charts is likely pointing to more selling ahead, though there could be huge volatility on a daily basis in both directions.

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

MACD on the volatile daily chart is now deep in bearish territory and trading sideways.

On the weekly chart MACD has had a steep bearish crossover and is close to entering bearish territory.

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:

We have what looks like a bearish double-top in the NDX on the daily chart.

Last week the 200-day line was broken to the downside. This week, with four down days, the NDX is again far below this 200-day average line.

The NDX portion of this strategy is BEARISH. Aggressive traders should be in CASH (money market funds).

Nasdaq 100 Index (NDX), Weekly Chart