The typical “Day Ahead” post includes charts and commentary for the S&P 500 Index (SPX), 30-year U.S. treasury bond futures, gold futures, Euro futures, crude oil futures, and the U.S. Dollar Index.
With the drop overnight in the S&P 500 futures of about 20 points, I have to at least entertain the idea that wave iii completed last week and that we are now in a wave iv correction. The previous idea, that of a lower degree fourth wave is still possible as long as prices turn up from no lower than 2745 SPX. Under that point, the larger fourth is probably in its first wave lower.
The S&P 500 spent yesterday in low volatility formation that, with hindsight, was probably the middle of the fourth wave we have been looking for. The S&P 500 E-mini futures dropped overnight in what is probably the last leg of the fourth. I lean toward the idea that the current futures low holds but can imagine the zone is tested early this morning before lifting throughout the day today.
I jumped the gun yesterday advancing my short term wave count since the market only went on to make a slight new high before retracing. So, back to the idea of looking for a relatively minor fourth wave and a rise out of it to at least challenge the May 13th in the S&P 500 and even make a try at filling the overhead gap at 2822. The S&P 500 E-mini futures made a small dip overnight and have been rallying as I type suggesting the low may have been set this morning before the cash open.
The market is likely to continue to bide time till this afternoon when the FOMC makes their decision known on whether they will hike rates. Keep in mind that the statement at 14:00 will be followed by a press conference at 14:30 which has a Q&A component that usually begins around 14:40-14:45 so there is a possibility of more than one headline shock. I've advance my short term wave count a little, promoting an intraday alternate to main, where we are now due for the last leg up in wave iii. I posit that the S&P 500 is primed to like the FOMC decision today, whether that is to not hike this time or go ahead with a hike but with language that dials back the pace of future hikes.
One major event for the week passed. Next is the FOMC rate decision and press conference tomorrow afternoon. Plan for today is similar to yesterday, overall think the S&P 500 holds up pretty well but can use a consolidation pattern. Ideal would be a minor new high today to yesterday followed by spending the rest of today and tomorrow morning running sideways. The alternate hypothesis is we don't get a minor new high and the consolidation has already started.
Expect today to be choppy and relatively range bound in the S&P 500 since the big news items are tomorrow through Thursday morning. It would be nice to see a test of 2786 today before trading sideways for a day or two.
I still favor a new high over that of yesterday before going into a more involved correction in the S&P 500. That said, if 2761 SPX fails to hold this morning, allow for a test of 2750 before another major rally attempt.
The S&P 500 is staying on track with the main theme of higher into middle of the month. The main target for yesterday, 2768 SPX, was hit and surpassed late in the day. Today, 2775 SPX may prove to be a short term roadblock though the next main target zone is higher at 2786 SPX. The equity futures roll to September today, making this a good candidate for a consolidation day.
The way to 2768 SPX should now be clear. The main theme is to use this period before the major news events next week to put as much pressure on the March 13th swing high as possible.
Yesterday was a dull day in the S&P 500 as it used 2742 as a floor and couldn't quite make it to 2753. As for today, still think the main event is to reach 2768 though 2753 needs to be dealt with first. If they don't like the morning economic news, a pullback to 2737 or 2731 SPX is possible before advancing past 2753. If they start positive and push over 2753, prices should move toward 2768 SPX with only very small pullbacks.
The S&P 500 should push for the highs from last month at 2742 and have a good chance at hitting the 2751 to 2753 today or tomorrow morning.
The S&P 500 fell a little more than I expected yesterday but well within bounds for a minor wave ii. News overnight plus the strong payrolls number this morning will likely result in a gap up this morning. Best if the gap is not filled and price grinds upward past 2718 toward 2728 or 2733 SPX. The larger theme remains higher into the middle of this month.
Nice move higher in the S&P 500 yesterday achieving the main objective of 2720 fairly early in the day before stalling just under recent highs. Game plan for today is to attempt to push past the May 23rd and 24th highs and put pressure on the May 22nd high.
I had made a comment in the intraday chat room late yesterday that the SPX feels like a beach ball being held underwater and that the force holding down will be released overnight. Sure enough, we will start the day with a gap up in the S&P 500. I favor the corrective structure from the May 14th high to the low yesterday being complete and now in the early stages of a thrust up that should easily surpass that high in early June. Short term, there will be some resistance at 2704 SPX that will need to be overcome but think the overhead gap at 2721 SPX will draw price toward it.
The turmoil around Italy is spreading a bit this morning with the SPX expected to gap lower by the price of futures but I'm not too concerned as of yet. This should allow SPX to have a shot at testing 2686 today which is a .382 retrace of the advance from the May 3rd low, a relatively mild retrace for a wave ii.
The plan yesterday was temporarily thrown of course with the canceling of the Singapore summit but the S&P 500 recovered relatively quickly to the headline after poking a new low under that of Wednesday. Today, let us try to get an intraday wave ii to stick for a higher low to that of yesterday around 2716 SPX.
The good news is the S&P 500 did move lower yesterday but only made it to the top of the target range before going into a holding pattern prior the FOMC minutes. After the minutes were released, the market rose in a pretty steady manner making it likely that the corrective move from May 14th is complete and ready to start a new leg up. Today, will look for 2725 or 2719 SPX to hold as support in the morning before moving on up toward the May 14th high and beyond.
Up until the overnight move lower in the equity futures, it was still plausible that there would be a push over the May 14th high and beyond before much more pullback. I actually welcome this drop as I think the pattern looks better this way but didn't want to fight a rise if they insisted on it. Would think that the S&P 500 at least pushes down to 2702 or the gap fill at 2697 at a minimum, and distinctly possible to stretch a bit for the .382 retrace at 2686 SPX but not strictly required.
The gap up yesterday in the S&P 500 through a wrench in my ideal view of slightly lower wave ii before pushing up in wave iii for the next week or two. However, since my main hypothesis is a rise in US equities into the June FOMC meeting, I don't want to be caught fighting against that rise if it is starting somewhat early. Short term I think there is a good chance to push past the May 14th high today and try for the gap fill from March 16th at 2751 SPX. Could prices still fall toward 2700 SPX? Yes, but have to put it at a lower probability now.
News that there is some progress on US-China trade negotiations has pushed the equity future high enough that I don't want to fight against it unless under 2723 SPX. Since the economic calendar is fairly empty till Wednesday, it may be best to assume a couple days of rise out of the sideways formation of the past week before stalling to read the FOMC minutes Wednesday afternoon
The S&P 500 stayed on track up yesterday by dropping away from a morning high but did pitch a curveball with the energetic afternoon bounce. Could the correction from May 14th? Leaning to no until at least 2705 SPX is tested. Even better for price to push for 2697 or 2693 SPX.
The S&P 500 bounced to test the top of the resist range yesterday at 2725. Now will see if they can turn down to retest the low from Tuesday or drop a bit under that to 2686 SPX to complete a corrective formation. I suppose it is possible that the bounce is not yet complete and will push higher before rolling down but put that as a lower probability.
The S&P 500 traded in a relatively tight range yesterday after gapping down on the open. I'm treating this move lower to test the break above the trend line as some form of second wave. A little lower to test 2698 or 2686 SPX is desirable but may have to endure a small bounce first.
Not certain if the high yesterday in the S&P 500 set the swing high. If it did, then we are starting a move lower that will retest the break above the downward sloping trend line. If not, they push higher to reach for the overhead gap around 2752. Using 2735 and 2726 SPX as a type of filter for breaking up or down.
It appears that the last swing up from May 8th is extending. The S&P 500 futures are up overnight but we may see what starts like a gap up drift back to fill the gap to the Friday close before advancing. Next natural target is the overhead gap at 2751 SPX. As mentioned in the Week Ahead post last night, a pullback that lasts at least several days should be close by.
The S&P 500 continues to do well but should be nearing a pullback relatively soon. I have a mild preference for a follow-through higher first to around 2735 SPX.
It took a couple hours yesterday for the expected move higher to kick in yesterday but did indeed press up for 2698 SPX. Next step is the open gap in the S&P 500 at 2709. After that is unknown. A consolidation may commence after the gap fill or it could push higher with more short covering and aim for 2734 SPX.
Yesterday, the S&P 500 stayed on script but it took its time doing so, slowly drifting down to 2658 and pushing up into the close. Today we will start the day with a gap up and should push to at least 2698-2700 if not on toward the overhead gap at 2709.
Yesterday was a relatively tight range in the S&P 500 but did finally make it to 2684. Now looking for a press up out of the pullback that started late in the day and that is stretching into this morning. The next goal should be to fill the overhead gap from April 18th and press against the downward sloping trend line.
Today we should see a continuation of the Friday move up in the US equity indices. A small gap up in the S&P 500 is possible judging from where futures are as I type. If there is a gap, I'm not against the first move of the day to be an attempt to fill it but expect prices to push up to at least 2684 later today or early tomorrow. Don't fight against a rise once over 2669 SPX.
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The equity markets took the FOMC rate hike well which I consider a positive for eventually getting a test or marginal new high in the S&P500. That said, it is worthwhile noting that the Russell 2000 and Nasdaq 100 have already made new highs over that of January this year satisfying the macro picture for a new high before a more serious correction process to begin. It also would not be shocking to see intermarket divergence where some indices make new highs and others make lower highs right before a serious downturn. Net, I think there is room for the equity market to extend but it is late in the game.
There should be a trade soon
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This week is full of events that could either push the equity markets higher or pull the rug out from under them, the Singapore summit on Tuesday, FOMC on Wednesday, and ECB Thursday morning. My base hypothesis is the wheels will remain on even with a rate hike by the FOMC as long as it is accompanied by language that does not sound too hawkish for further hikes this year.
By request, here is a look at the ETF that covers Brazilian equity. Looking at the weekly chart below, you will see that I am calling the move from the 2008 high to the early 2016 low a completed three wave corrective structure. Up from the 2016 low, I think you can call that an impulse up for [i] or [a]. The current swing down this year should only be the first move down in a three wave formation for [ii] or [b]. Prices have bounced from a Gann related support at 31.37 though I favor a test of that low or a new low before the impulse is complete. The idea of a new low in (a) is alive as long a the bounce stays under Fib resists at 35.16 and 37.62.
I've been asked to look at Brazilian equities and will do so over the weekend, but thought some of you may find this interesting to tide you over till then. I had been working on this since it has been in the news. The Brazilian Real has been bouncing today off of support today. I don't know if the bounce will end up being a wave (ii) or (iv) as I can argue for either but certainly think it isn't something to short until up against 0.2775.
We show where to look for the trades
It should cut into the year-long advance
The S&P 500 dropped a bit lower at the beginning of last week to test the broken trend line and climbed up out of the hole the rest of the week. I see this as a positive development that should result in prices moving upward this week to new post May 4th highs. The main theme is higher into the middle of this month to the next FOMC meeting. Next goal should be to aim for 2794 SPX.
Primary view is that GBP futures are in the first stages of a move that should test or exceed the 2017 low. A monthly chart for perspective is below.
A downward break out of a decade-long triangle
The rest of this holiday is shortened week is filled with a fair amount of scheduled economic news with the NFP on Friday morning as the main event. The primary scenario in the S&P 500 is to see a break up out of the sideways formation of the last few weeks into the middle of next month.
IWM is rising as expected. Here are some target zones where the move might end.
Starting the weekly post with some musings on two ETFs that cover large cap European equities, the SPDR Euro Stoxx 50 ETF (FEZ), and the iShares MSCI EMU ETF (EZU). FEZ is the narrower of the two in that it is only the 50 of the biggest companies in Europe and EMU a more broad selection of large cap but there is obviously a lot of overlap between the two. They both paint a picture that says that valuations of large cap in Europe have not fully recovered from the 2007 financial crises and that they are late in their bounces, in fact, I think you can make a case for European large cap may be over. I'm open to the idea of these beginning to roll over and the US equity indices continue on to a new high later in the year.
Since Italy has been in the news lately by finally getting a coalition government formed, I thought it a good time to peek at the ETF covering the Italian equity market. As last time I updated this, it still looks like a decade long triangle either finished or nearly so.
I know you have had to endure my cautious optimism over the past three months where I have focused on finding lows versus pounding the table to sell on highs but it has borne fruit in Russell 2000 and its corresponding ETF IWM which has pushed to a new high over that of January this year. While I expect it to attempt to reach higher into at least next month if not into August, it is wise to begin to lock in some profit by some combination of raising stops or taking partial profits on this new high. Next harmonic of the wide base channel is at 166.00.
We have had a second solid week up in the US equity indices since the last test of critical support. The fast dominant cycle is in an up phase into middle of next month which supports the theme that between now and the next FOMC meeting will be a period which the equity indices have the lion share of the gain from the wave (iv) low. I'm a little skeptical they get a new high in by then but neither is it impossible. I still favor the equity indices holding up into the next cycle inflection in late August.
I think the main event that took place last week for the US equity indices was that the 50% extension of the channel in the New York Composite held. The low last week is a good candidate for a wave (iv) low and now looking for a rise for the next month at a minimum if not into the summer. I'd like to see a new high but I can live with a truncation or intermarket divergences. This week, the goal is to not give up much of the gain from last Friday and attack the April high.
It appears to be breaking beneath support
Bullish scenario is kicking in
This week will be heavy on economic data with the standout items being the FOMC statement Wednesday afternoon and the NFP Friday morning. Because of this, I am thinking the easiest gains on the week will be early, Monday and Tuesday. Wednesday afternoon and/or Thursday might turn into a type of consolidation waiting for the Friday news.
I want to start with the Dollar Index this week as I think it is on the verge of poking over 90.51 causing a decent amount of short covering to kick in and the monthly and weekly dominant cycles should help it along. Worth noting that the ECB press conference is Thursday morning so no doubt could function as a catalyst to get this started. Monthly and weekly charts below.
I did a little work on the big picture in the QQQ's, the ETF for the Nasdaq 100 index, today so that is a good starting off point for this review of the big picture for this week.
US equity indices gave back gains made in the first part of last week at the end on increased tariff rhetoric but held above important areas. I know that it may be frustrating that I am not on the sky is falling bandwagon but I still think there is a good chance that the wave (iv) correction ended and we start a rise from this area for a couple months. Don't get me wrong, I think the market is headed for some very turbulent times but I don't think we have seen the high yet. We will see if they can hold steady at the start of the week and not be shocked by the FOMC minutes Wednesday afternoon. Let's start off with a bonus chart of sorts, a weekly chart of the ETF for the Russell 2000, IWM. It is resting on the top of the wave (iv) target area now and has the adaptive CCI positioned at a zero line test.
Two ways a decline might play out
4th wave correction nearly complete
The S&P 500 held important support last week from both a typical 'c' wave target and a trend line that has proven to be important over the last couple years. If that area holds till the NFP on Friday, the odds that wave 'c of (iv)' has been set go way up. One thing of interest on the weekly chart below is that the adaptive CCI is nearing zero after an extended time above it, which is typical fourth wave behavior.
The 'c of (iv)' in the US equity indexes is well underway and can complete in the holiday shortened week.
The main event for news this week is the FOMC rate decision on Wednesday at 14:00 followed by the press conference at 14:30. It is typical for the equity markets to rise into the FOMC meetings thus that will be the main game plan going into middle of the week. It is possible that the 'b of (iv)' has been set in SPX last week but still think we see a modest high over that of last week.
I was working on the ETF that tracks crude oil, (USO), and have decided to promote what I had as an alternate count in crude to the primary, that there is one more high needed to complete a five wave sequence up from the low from last year.
The main hypothesis is that the DX rise up from 2008 is not yet complete and can accommodate at least one more high over that of the 2017 high. Why do I push back on the idea of a DX high being in and the first impulse down complete or nearly so? Two reasons. One, the move up from the May 2016 low does not look like a well formed impulse but more like a three which is more consistent with a (b) wave high. Two, both monthly and weekly cycles suggest a pretty significant low and a into 2019-2020. I'll even add a third, that the correction from 2012 to 2014 lasted 22 months, and the correction from the 2015 high marked [iii], to the low last months was 35 months, about as close as you can get to 1.618 expansion in time as you can get thus having price and time pointing to a significant low.
The British Pound ETF (FXB) is assumed to be forming a wave [iv] like most of the major USD crosses. The move up from the early 2017 low has stalled against a possible wave [iv] target but has not quite pushed low enough to break the uptrend.
It is normal that the recent rise is slowing as previous highs are tested but do think we should at least see the channel tested on the monthly chart, around 3.27%, or the first fib extension up at 3.35% is tested before much of a retrace.
Since there are elections coming up this weekend in Italy, thought it would be a good time to update the big picture charts for this ETF. I have interest in it as it has formed a classic triangle from the 2009 low and may have completed at the start of this year. I also think it can turn into a canary in the mine, a harbinger for the future.
An overall bullish expectation with some targets to watch
As a continuation of the post yesterday taking a look at the big picture, here is much the same but using the ETF for the Russell 2000 (IWM). The idea expressed here is the same, that we are now in wave (iv) of [v] up from the 2009 low. Expect at least a few months of mostly sideways price action before a push to a new high.
Quite a week in the equity indices last week. Is the end upon us? As you know, my view is no, that we have been expecting a wave (iii) high in the advance up from early 2016 and now should be forming a several month corrective pattern for wave (iv) before an eventual top that should end both the advance from 2016 but also the rise form the 2009 low.
The primary hypothesis in Crude is that the 2017 low was a truncated low and that we are now seeing the first move up out of that low. The next move should be a corrective move lower that last at least until May if not continue into October.
Here's a quick reference for Bradley siderograph inflection dates and gaps up in the Dow and SPX
In the big picture, either a high is being set soon that results in a significant retrace lower or gold will make a run for mid 1400's if not 1500. Gold has mostly been range bound for the most part of last year and as such I don't see that as terribly bullish. USD has been weak the last year against most crosses and this is the best gold can do?
Bonds are staying on track with the primary forecast of a breakdown out of the ending diagonal that finished in 2016. Best if price pushes under the March 2017 low before much of a bounce.
Both scenarios suggest bullish opportunities in coming months
With the USD weakness that we have being seeing over the past few weeks, it is a good time to update the monthly and weekly charts on both the main and alternate EW counts on a popular ETF for USD, (UUP).
Bearish scenario still in the lead
Price is putting stress on a supportive trend line, forcing a squeeze between support and resistance.
Here’s a compilation of the open gaps in the S&P 500 and the Dow 30 since last September.
Since I just updated the DX monthly and weekly charts, thought I would plough ahead and update the ETF UUP as well. Same story, expect a wave (iv) has been set and looking for a new high over that of the early 2017 high in the next 18-24 months.
Just refreshing the long term charts on the Dollar Index (DX). The forecast is unchanged in that I think that that the Dollar has at least one last high left in it over the next two years.
Right now the bearish case looks best
UNG, the ETF that tracks natural gas, has elected to take the alternate path from when I last posted these charts by pushing to a new low under that of the 2016 low. The dominant cycle has shifted a...