Sunday Update: 05 August 2018

Volatility is picking up again.  As expected, we saw some weakness early in the week.  Fortunately, both the C and S funds found support at important short term levels.  We’ll get into the short term details below along with two 10 year charts that I’m tracking very closely.  For the week, the C fund was up 0.76%, the S fund was up 0.87%, but the I fund was down 0.99%.

Very Long Term

Before we get into the Short Term charts, I want to show how the Elliott Wave count is progressing on both the S&P500 (C Fund) and the NASDAQ Composite Index.  The S&P500 and NASDAQ are 2 of the 3 broadest indexes in the US.  The Elliott Wave count method works best on broad indexes as opposed to individual stocks.  As you can see in the charts below, both the S&P and NASDAQ have progressed along a similar 5 wave count since the last major low in 2009.  The key take away here is that the NASDAQ is at new all-time highs while the S&P500 is still working in that direction.  This means the NASDAQ is leading.  There is no way to tell exactly how high the NASDAQ will run before topping out.  Because it is at new highs, the NASDAQ has met the technical requirement for both the short term 5 and long term V count,  I’m watching it very closely because, once the NASDAQ rolls over, the S&P500 (C fund) will be close behind…

The S&P500 (C Fund) is progressing along in a very similar pattern as the NASDAQ above.  You can see that the C fund is still a bit below it’s 3 leg.  While the patterns are similar, they are not exact.  In hindsight we’ll be able to see the topping pattern and identify the actual top of this long term rally.  What’s important to see now is that we are rapidly approaching the final high…  Book mark these 2 charts.  When the real downturn begins, it will be very clear on these 10 year weekly charts.

Short Term

It’s amazing how these support/resistance lines work if you can identify them.  The 2800 level provided significant resistance for most of 2018.  In early July the price chart finally pushed thru.  Resistance became support when the price declined to this level in late July and tested it again on Thursday.  The 50DMA approaching 2800 further enhances support.  We should not see a close below this level before breaking thru to all time highs.

The S fund found support at its 50DMA and we now have a bullish triangle consolidation pattern formed.  It’s bullish because higher lows indicate upside buying pressure.  Once the price pushes thru resistance at 1470, we should be off to another move higher.  Having said that, it may take several weeks to push thru resistance.  A close below 1430 would invalidate the pattern.

The I fund had a tough week.  It was working on support at its 200DMA but broke lower on Wednesday then gapped down on Thursday to its 50DMA.  It will be a very bullish sign if the I fund moves higher from here.   It’s right in the middle of the trading range so, it’s a coin toss as to which way it goes from here.  

The top is coming but I am still biased to the bullish side.  We should have a few months of higher prices before things get interesting.  September and October have brought big market crashes in the past.  Stay alert…

Have a great week!

Jerry