For the last couple weeks I have been looking for a reversal lower in bonds but I am begging to wonder if they hold or even rise a bit more into the next FOMC meeting which is August 1st. My preferred scenario is one where the dominant cycle inverts and leads to a move lower into the end of the year.
Weekly bonds tested the 146^27 resistance level last week while the weekly dominant cycle is signaling a possible inflection and the adaptive CCI is about to have a zero line test. All the above suggest that the move up from May is in danger of ending soon and resuming the trend lower. The alternate is that this bounce is only the first wave up in (ii) and will become more complex later in the year retesting resistance after moving down for a month or two.
Changing up the order I look at charts to an alphabetical order to optimize my workflow just a bit. Don’t worry, we will get the S&P 500, it will just be at the end.
Here is a brief intraday update on the progress of the S&P 500 intraday since the Slack service that we use for the live chat is having connection problems this morning.
The grand theme that I have been operating under is that the S&P 500 and US equity indexes in general should have a rise into middle of June at a minimum and perhaps into the next cycle inflection at the end of August. If the S&P 500 had a completed five wave impulse to a test of or new high with this cyclic positioning, I would be claiming a high was being set. The wrinkle in the plan is that we don’t have a test of the high nor a very satisfying formation. Up to this point I’ve been pounding the table for the prospects for higher but I’m going to pull in my horns a bit now. I still think it wise to allow for higher but prudent to manage any long positions you may have. After all, the Russell 2000 and Nasdaq 100 have made new highs over that of early this year and wouldn’t be shocking to have intermarket divergences at the top.
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.
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.
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.