Summary b/2 b/2 Aloha,

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1 Summary As we ve been navigating this Bear market s twists and turns rather successfully over the last few weeks, we can hopefully continue this winning streak. Short-term, Friday s price action left a lot to be desired but still suggests we should be in minor-b/2 of intermediate-c of major-a, targeting SPX on the S&P500. It depends a bit on how we get there: drop to SPX2700+/-5p and then rally or continue to rally into the target zone. A break below SPX2690 from current levels means b/2 has IMHO already topped. With A) -what counts IMHO best- five waves down from SPX2815->2670; B) prices on most indices below their 20d to 200d SMAs, C) weak buy signals and weak breadth; I continue to favor the view that intermediatec of major-a to SPX2475 has started. We will need to see A) a move above many indices 200d SMAs and B) a move above the prior bounce highs (SPX2815) to tell us the corrective wave is still unfolding and targeting SPX2860. In this weekend update I ll review and argue for why I use price (charts) and not fundamentals to forecast the markets next turn. And in this weekend update you ll see our excellent trading and investing performance with my Hedge Fund NorthPost Partners, LP and my Private Twitter Feed. Aloha, Dr. Arnout, aka Soul, ter Schure 1 P a g e

2 Elliot Wave Updates I will continue to use the NASDAQ S&P500 combination as it has helped me so well in tracking and forecasting the market s next moves and price targets over the past weeks. After reaching the SPX target zone followed by the SPX2675+/-5p target zone, the expected and preferred b/2 wave bounce is now underway. With Friday s price action we now have, what I interpret as, 3 waves up on the NAS and 5 waves up on the SPX. However, Friday s price action was rather overlapping and leaving much to be desired. IMHO it s an ending diagonal micro-5 wave on the SPX and just a mess on the NAS. Hence, either minute-a has topped or it will move a little higher (SPX2750/NAS7300) before minute-b takes hold and moves price to SPX2700/NAS7150 +/-5p before minute-c rallies price ideally to SPX , from where minor-c/3 to new lows (<SPX2604) takes hold. A direct move below SPX2725/NAS7170 without making a new high first means minute-a has already topped. And yes, even all of minor-b/2 can already have topped by then (remember that rallies in bear markets fall often short in price and time), but we ll need to see a move below SPX2690/NAS7130 to confirm this. Figure 1. A) NAS 1 min chart. Friday s price action left a lot to be desired, but still looks best as part of minor-b/2: Either all of it or only wave-a. B) SPX 1 min chart. Counts short term differently than the NAS, and an EDT for wave-5 of wave -a of -b looks best for now. A B 2 P a g e

3 While most pundits are still looking higher, and although possible (dotted arrows), I prefer to treat the current rally off the SPX2670 low as part of the larger intermediate-c wave down (solid arrows). In last week s update I went over the many reasons why; and this week we can add the fact that there were IMHO five waves down from SXP2815 to SPX2670, as well as on the other indices (NAS, DJIA). If I assessed this price action correctly, it means that indeed the dominant direction is down, not up. Hence, given I ve nailed all price targets over the last 3-4 weeks, I find that the market has still not proven me wrong. But, since we always need to be open-minded, we will need to see a move over SPX2815 to know a move to SPX2860 is underway. However, that would be such an easy short that I am not sure the markets will make it that easy Until then, I prefer the short-term correction scenario, which will suck in all the Bulls before the rug is pulled from under (solid lines). Figure 2. SPX daily chart. Solid green lines is preferred view/pathe forward. Dotted lines alternate view. 3 P a g e

4 Chart Patterns Updates Other reasons that keep me bearish until proven otherwise is that all indices, expect the DJIA -which has been the strongest of indices- are A) trading below their 200d SMA (Fig 3, 4); B) my proprietary A.I. Buy Sell/Indicator has not even given a buy signal for the last two days rally. Price on the S&P has stalled below resistance and will have to move above the 200d SMA (SPX2760) before we can even start to think off a retest of the SPX2815 high. Lastly the 20d to 200d SMAs are all pointing down. That s Bearish as well. Thus, for now using the data at hand we must conclude there s nothing Bullish about this chart. Figure 3. S&P500 daily chart. Price below its 200d SMA the whole weak: Bearish. Price still below resistance: Bearish. No A.I. buy signal off the SPX2670 low: Bearish. 20d, 50d, 200d SMAs pointing down: Bearish. 4 P a g e

5 Similarly, the NASDAQ chart: while tech (and small caps) have lead the Bull Market off the March 2009 lows high over the past 10 years, they are now the weakest and leading the other indices lower. That should provide enough food for thought. We can see -like the S&P- how the NASDAQ is unable to keep its head above water (the 200d SMA) for anything more than two days over the past month +. I can only view that as Bearish. Current buy signals are weak and none-existent for the A.I., whole price has been unable to even regain the red downtrend arrow. Even if it would, the 200d SMA still lies ahead as resistance and even a break above it using the simple c=a relationship (blue arrow) would target ~$7700 at the most IMHO. But, with price below its falling 20d to 200d SMAs and all data at hand I find such a move higher for now a bit of a stretch. Figure 4. NASDAQ daily chart. With the current data at hand it is as Bearish, if not more Bearish, than the S&P P a g e

6 The weekly chart of the S&P500 (and all other indices) didn t improve this week as prices closed lower. The S&P500 closed again below its 50w SMA. The last time this happened was during the 2015/2016 Bear. Money keeps flowing out of the market, the MACD remains on a sell, and the A.I. is in bounce mode. Resistance remains at SPX2775 +/-5p (red arrow), which coincides with my preferred b/2-wave bounce target of SPX A break below SPX2605 targets SPX2475ish based on simple symmetry. Figure 5. S&P500 weekly chart. Chart continues to deteriorate, closed again below its 50w SMA. All TIs on a sell, except the A.I., which is in bounce mode. 6 P a g e

7 Market breadth and Sentiment The SPXMO (McClellan Oscillator -MO- for the S&P500) ended the week at +33, down 23p compared to last week, and all indices MOs ended the week positive, but lower for the week. See table 1. Last week I found All MO s FTSO indicators reached peak levels and turned to sell on Friday. Each time this happened in 2018 it meant multi-day downside is ahead. And this is exactly what we got. All these FTSO s remain on sell: see Table 1. Although all indices Summation Indexes are still on a buy, the daily cumulative NYA A/D line is still in corrective mode. It will have to move above its EMAs and red downtrend arrows to tell us a more constructive up move is underway (to SPX2860s). Until then, corrective-mode it is. Figure 6. A) Daily SPX-SI: Still on a Buy. A) Daily NYA A/D: Still in corrective mode. 7 P a g e

8 Last week sentiment per the AAII Sentiment (what I perceive as an intermediate-term indicator) was getting very bullish, which was considered as consistent with the forecasted decline be it either wave-b of b or all of wave-c. This week Bullishness dropped 6% to 35% and Bearishness rose 5% to 36%. Both are a bit below and above their long term averages, allowing for the upside we re seeing now. A few more days of upside will certainly wrong foot most again. The Fear & Greed Index ended at 10 last week, down 18p compared to last week (on a scale from 0 to 100: extreme fear). Since the FGI is based on technical data, it is correct in that many charts are still very bearish. This week I want to add the NAAIM exposure index as it has been touted by other pundits to foretell the market will go higher since this week was a low reading. Going back to 2006, since data became available, we see A) long term bottoms tend to happen at even lower readings and B) the NAAIM hasn t even turned up yet = don t front run, as lower readings can always go lower. Figure 7. A) NAAIM weekly Exposure: Low, but nothing that screams bottom in place especially since there s not even a reversal yet. We can assess shorter-term Bullishness and Bearishness by checking the put/call ratios. Last week the CPCE (equity put/call ratio) ended at 0.74 which is 6p lower than the prior week, while the total put call ratio (CPC) ended at Both are in what I call the neutral zone. Thus, short term there s not much fear but rather complacency considering the markets ended lower for the week. 8 P a g e

9 Simple Moving Averages Charts The Simple Moving Averages (SMAs) can be used for trend-following. The Short Term (ST) chart continues to deteriorate supporting further downside instead of upside and is now 85% Bearish. The Long Term (LT) chart is about the same as last week: ~80% Bullish Figure 10 A) Short term Simple Moving Averages: 85% Bearish. B) Long Term Simple Moving Averages: 80% Bullish. A Copyright Intelligent Investing, LLC. May not be copied and/or distributed without permission. B Copyright Intelligent Investing, LLC. May not be copied and/or distributed without permission. 9 P a g e

10 Why Price over Fundamentals!? As you ve come accustomed to from my work, I prefer to only look at price to tell me where the markets are most likely heading next instead of Fundamentals, Earnings and News. Let me reiterate why; as this is IMHO an important aspect of understanding the markets. This week Wallmart, HomeDepot and Macy s reported strong earnings, but were sold off nonetheless. Pundits continue to tell us that weakness in brick and mortar retail is simply a sign that consumers are doing more shopping online. But, is that true? Amazon, the largest online retailer in the world (!), continues to trade lower (now below its 200d SMA) and has already lost ~20% (!) since the start of September: bear market territory. So, what s wrong with Earnings (and Fundamentals)? Well inherently there s nothing wrong with them, but they say nothing about the future, or even the present. They only tell about conditions of a couple of months ago. Nobody knows the fundamentals for this current quarter. Yet we keep hearing with much certainty and fist-on-tablepounding that fundamentals and earnings remain bullish. The problem here is the stock market is forward looking. So, trying to forecast a forward-looking mechanism with old data is, well, shall we say not the smartest thing to do, or is it?! In addition, we are also being told that the US economy is doing great despite the fact that the rest of the world -including Europe!- is already weakening and has been weakening for most of the year. Counter argument is then the usual the US will pull the whole world out of its misery. Wrong again, as the US often plays catch up during tops: strong economies falter the last but also rise the first. Bottom line: Would you prefer to trade the stock market using price data from two months ago, or would you prefer to use the most recent data? I think the answer is rather easy, clear, and simple. And that's why I look at the price charts. They provide the most up-do-date information on the state of the stock market. In addition, since stock markets are forward looking, and have been selling off over the last month, they are likely also telling us something about the fundamental/earnings reports coming out next quarter. Thus, while we sit in the driver s seat of the car called stock market, I am certain it is much safer to look through the front window to know where we re going, and not the rearview mirror. Adapted from: stockcharts.com 10 P a g e

11 Buy/Sell signals based on Summation Indices and Mechanical System NO system is perfect, and NO system or trader has only winning trades. EVERY system gives false signals every now and then resulting in losses. But, sticking to a system over the long-run will pay off. Discipline pays. Switching between systems does not. Good systems have small losses and big gains and out-perform the indices. If you can t handle losing trades: don t trade! Table 1. Buy/Sell Signals based on Summation Indices Table 2. Buy/Sell Signals based on my Mechanical System for SPY/SH only. 11 P a g e

12 Trading Performance Update with Hedge Fund North Post Partners, LP NPP provides neither a boom, nor a bust. Just consistency. This week we added another 3% We are now at +26% YTD. Our goal is to provide our clients with a +20% per year and again we will not disappoint them. When will you join!? Please see below for more information. Spare yourself the headache and let us do the work for you. We can manage your 401L for you as well. Please check how your retirement fund is doing vs ours. If it s underperforming ask yourself: is that how you want your nest egg to perform?! NPP s performance since going public/live 2017 compared to several major indices. Insert shows YTD performance. If you want to join our winning team, please contact me or NPP s President, Rus Chao, directly (rustinchao@gmail.com) for more information. We do the hard work, i.e. trading for you, and you get to reap the rewards! *It should not be assumed that future performance will always be guaranteed and/or profitable. Nor will future performance necessarily equal past performance or past performance trends. All trading and investment decisions are the sole responsibility of NPP. Joining NPP is free, but does not exclude commission costs, and other possible charges. 12 P a g e

13 Trading Performance Private Twitter Feed: Please Join Me & Sign Up Here. Last week s loss on PCG has almost been erased with only two well-planned and executed trades the past week in just two days. That s how its done. Performance is still rocking! So how does it work!? I tweet in real-time when I buy or sell and you can simply follow my lead*. It doesn t get simpler than that! Of course, you don t have to Private Twitter Feed Trading Results Since June 1* Subscriber does not have to act upon tweets and should consider them as for information purposes only. Results (% gains and losses) are calculated assuming each trade is of equal sized position. However, position sizes may differ in reality. Results are for Intelligent Investing, LCC s - the provider- trades only. Subscriber results may vary due to different time of entry as provider s trades are tweeted shortly (up to two minutes) after they ve been made. Subscriber takes full responsibility for his/her own trades and assumes no liability towards the provider regarding possible losses as provider s system is not perfect and no system can guarantee only winning trades. When you subscribe you have read and agree to I.I. s terms and conditions and have read, understand and agree to I.I. s disclaimer. 2018, Intelligent Investing, LLC. This copyrighted weekly periodical is published on non-stock market trading weekend days by Intelligent Investing, LLC, and is intended solely for use by designated recipients. No reproduction, retransmission, or other use of the information or images is authorized. Legitimate news media may quote representative passages, in context and with full attribution, for the purpose of reporting on my opinions. Analysis is derived from data believed to be accurate, but such accuracy or completeness cannot be guaranteed. It should not be assumed that such analysis, past or future, will be profitable or will equal past performance or guarantee future performance or trends. All trading and investment decisions are the sole responsibility of the reader. Inclusion of information about managed accounts, program positions and other information is not intended as any type of recommendation, nor solicitation. For more information, contact intelligent investing at intelligent_investing@yahoo.com. I reserve the right to refuse service to anyone for any reason. 13 P a g e