During holiday-shortened weeks the bears tend to take the week off. Shorting a market, especially a bull market, takes a lot of concentration and careful watching. They tend to give up that effort around the holidays and that leaves the bulls free to frolic. While they might not be doing much frolicking this week the market remains more bullish than bearish.
Today's Market Stats
Not surprisingly, not much happened in the market today. The Dow and the RUT (strange bedfellows) were a little stronger than the other indexes on Tuesday and that was reversed today as they were a little weaker than SPX and the tech indexes. But the past two days showed positive market breadth, which shows there was an underlying bid to the market with the expectation for higher prices since this week tends to be bullish. There's also a high expectation for the rally to continue into year-end. There are reasons to suggest that might not work in the bull's favor.
The day started out quietly and continued that way for the rest of the day. The day's economic reports had virtually no effect on the market. Because Thursday is a holiday we got the Thursday economic reports today, such as the unemployment data, which continues to show essentially full employment.
Durable Goods orders dropped in October by -1.2% which was a strong decline from the +2.2% in September and worse than the +0.5% that had been expected. Taking out the transportation segment had it looking a little better -- +0.4% but still less than the +0.7% that had been expected and a drop from +1.1% in September (revised upward from +0.7%).
The Michigan Sentiment (final) report for November came out at 10:00 and improved slightly from October's 97.8 to 98.5, which was also slightly better than had been expected. This afternoon we received the FOMC minutes and not surprisingly there was no reaction from the market. The Fed has taken a back seat to what's happening in Washington, DC these days. There's a lot of hope pinned on a successful tax-reduction package passed by Congress. Personally I think it's misplaced trust in this Congress being able to do anything (besides, doing nothing is actually better than the kind of changes they try to make).
Tis the night before the gobblers and all through the house...oh, wait, wrong holiday. Regardless, it was a quiet day and will be even quieter the rest of the week (it's essentially a nice 4-day weekend we're heading into) so I'll do a quick review of my charts and point out what I'm looking for in the coming week.
By this time next week I think we'll have a good idea as to whether or not we should be looking for a market top by the end of the month (or first week of December). At the moment that's what I see setting up but as always, proof will require further price action. The bulls have had a habit of not agreeing with bearish assessments and that could continue into the end of the year.
S&P 500, SPX, Weekly chart
SPX continues to nuzzle up underneath the trend line along the highs since April 2016 and the midline of its up-channel from 2010-2011. In the meantime its uptrend line from February 2016 is getting closer, now nearing 2550, and soon it's going to get pinched and will likely make a bigger move soon. The pattern for the rally from January 2016 can be considered complete and I'm not expecting much further to the upside before a strong reversal of the 2016-2017 rally (note the rising wedge shape, which means it will likely get retraced much faster than it took to build it).
S&P 500, SPX, Daily chart
The short-term pattern for the rally from October 25th is not clear since it's choppy but at the moment it's looking like we should expect SPX to chop its way higher into next week and possibly into the first week of December before it tops out. Until I see something that changes that expectation, I'm looking for a top to this rally near 2625 as early as the end of the month and as late as the first week of December.
Key Levels for SPX:
- bullish above 2597
- bearish below 2566
S&P 500, SPX, 60-min chart
The series of 3-wave moves since the October 25th low is why I'm thinking we'll see the rally continue in a choppy pattern and hammer out a rising wedge for a 5-wave move up from October 25th (and ending diagonal 5th wave to complete the leg up from August). As always with corrective choppy patterns, they're very difficult to figure out in real time but the 60-min chart shows what I think are the two mostly likely paths for the rally to continue (bold green and light-green dashed line). The first sign of trouble for the bulls would be a drop below the November 17th low near 2577.
Dow Industrials, INDU, Daily chart
The Dow is looking like it has its eyes set on making it back up to the trend line along the highs from April 2016 - March 2017, currently near 23760. From a short-term perspective I see the potential for only one more push higher, perhaps to about 23700, to complete its rally. But if it stair-steps higher next week we should see another test of the 2016-2017 trend line near 23800 by the end of the month. Above 23830 would be more bullish but I'll be watching for a potentially very important high next week.
Key Levels for DOW:
- bullish above 23,830
- bearish below 23,250
Nasdaq-100, NDX, Daily chart
The top of a parallel up-channel from July for NDX is currently near 6423 and is the upside target for now. If it spends its time chopping higher through next week we could see NDX make it up to a price projection near 6452, which is where the 5th wave of the rally from August would equal the 1st wave. Much above 6453 would therefore be more bullish but at the moment it's looking like we could be topping very soon.
Key Levels for NDX:
- bullish above 6453
- bearish below 6228
Russell-2000, RUT, Daily chart
The RUT has reached a potentially important level once it achieved a price projection at 1519.36. It tagged that level on Tuesday and popped above it today but closed below it, leaving a small shooting star. This projection is where the 5th wave of the rally from August equals the 1st wave and could therefore be the completion of its rally. A strong impulsive (5-wave) decline would tell us a top is in place. But there remains further upside potential if the market is going to hold up into next week.
There's a higher price projection near 1560, which is where the 5th wave of the rally from August would be 162% of the 1st wave. A little higher, near 1572, is a price projection based on the height of the expanding triangle pattern for its October-November consolidation, as noted on the chart. As shown further below, the weekly chart also shows a projection at 1562. So we need to respect the upside while recognizing the downside risk, especially since the pattern can be considered complete here.
Key Levels for RUT:
- bullish above 1519
- bearish below 1481
Russell-2000, RUT, Weekly chart
As mentioned above, there's another reason why the RUT could head up to the 1560-1570 area. For the rally from February 2016 the 5th wave would equal the 1st wave at 1562.33. The close correlation of price projections in the 1560-1570 area certainly makes it a target zone that will be watched carefully if reached. Looking at the daily chart above, the bulls will want to see any pullback hold on a back-test of the top of its expanding triangle pattern, near 1510, and then continue higher. Otherwise the RUT could be forming a top sooner rather than later.
20+ Year Treasury ETF, TLT, Weekly chart
Looking at the weekly chart of TLT it's looking like the Treasury market is getting ready to rally, which would drive yields lower. The pullback into the October lows was a back-test of both the 50- and 200-week MAs while MACD only pulled back to the zero line. If MACD starts up from here it will be a buy signal.
As long as TLT holds above its uptrend line from 2011-2013, now near its October 25th low at 122.42, it will remain bullish. Bullish bonds would make it a threat to stocks since money could be getting ready to rotate into bonds, especially if there's a rush out of stocks into the relative safety of the bonds.
U.S. Dollar contract, DX, Daily chart
While the longer-term picture for the US$ is up for grabs, the short-term pattern suggests its current pullback from November 7th will continue a little longer. Two equal legs down for what could be just an a-b-c pullback correction to the September-November rally targets 92.32, which would be a 62% retracement of the rally (at 92.54). Both also coincide with what would be a back-test of the top of its broken down-channel from the January 2017 high.
Based on the close correlation at 92.32-92.54 the dollar would look more bearish below that support zone. Below the 78.6% retracement of the rally, at 91.86, would strongly suggest a new low is coming, in which case the downside target will be near 90.
Gold continuous contract, GC, Daily chart
The dollar's struggle has been gold's gain, although the gain has been choppy and looking more like a bounce correction than something more bullish. The double-bounce off its broken downtrend line from 2011-2016 in October is bullish and if gold can get above 1310 (two equal legs up from October 6) I think we'll see a stronger rally.
At the moment it's struggling beneath its broken uptrend line from July 10 - October 6 and its broken 50-dma at 1287. Only slightly higher is price-level resistance at 1300. One bearish idea is shown in bold red, which is a further consolidation inside a sideways triangle and then a breakdown later in December.
Oil continuous contract, CL, Weekly chart
There is a potentially strong resistance area for oil at roughly 58.50-59.00, which includes price-level S/R since 2005 and the 38% retracement of the 2013-2016 decline (59.06). The 200-week MA has also now dropped down to slightly below this zone, currently at 58.37. Today's high was 58.15 so there's at least a little more upside potential, especially if it makes it up to the trend line along the highs from June 2016 - January 2017, near 61.60. Oil would be more bullish above 62 but I think the greater likelihood is for oil's bounce to fail at any time and start the next leg down.
The results of today's economic reports are shown below and there are no more significant reports this week.
The shortened trading week around Thanksgiving is typically bullish and so far the bulls have continued the trend. The rally could continue into the end of the month but I'm struggling to see how it will make it much beyond that. The price patterns for the different indexes suggest we should be looking for a top, which could be here or it might not be until the end of next week or maybe into the first week of December.
Prices are chopping higher and they could do that for longer than seems possible so it's not a good time to be thinking about stepping in short. The bulls still control the tape but once everyone is back at their trading desks next week we might find them wanting to be more defensive than aggressively buying more stocks. There are a lot of profits to protect and I don't think the market is going to get the "good" news it wants with a tax-reform package. Even a passage of something (the Republicans have reached the point where they feel something is better than nothing) is already priced into the market, which makes it vulnerable to getting something less than what it expects.
If Congress gets all jammed up, which is what I think will happen, and nothing passes then look out below. The market will have lost its last hope for more rally and the large rising wedge patterns for the indexes suggest a downside break, when it comes, is going to take the market down fast. Be cautious about the long side while the bears (im)patiently wait for their turn.
I hope everyone has a wonderful time with friends and family for the Thanksgiving holiday. We truly have a lot to be thankful for, even when things around us (beyond our control) seem to be getting worse. Live locally and be thankful for what we have.
Good luck and I'll be back with you next Wednesday.
Keene H. Little, CMT
In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying