2/5 WEEKLY CHART ALSO IMPROVES... Chart 2 plots a weekly chart of the S&P 500 since the start of its last major upleg at the beginning of 2016. Big negative divergences on its weekly RSI and MACD lines last September warned of the market downturn that took place during the fourth quarter. There are both positives and negatives on the chart. One positive is that the 14-week RSI line (upper box) bounced off an oversold reading near 30 in late December which helped launch the current rebound (black arrow). It's now trying to climb back over its mid-50 line which would put it in positive territory. The lower box shows weekly MACD lines also turning positive for the first time since late September. The MACD lines, however, are turning up from the lowest level in more than three years, and have a long way to go to move back over their zero line. A glance back at the early 2016 bottom shows that happening during the second quarter of that year (green circle). The blue circle shows weekly moving average lines also turning positive by April of that year. Both weekly indicators have a longer distance to climb this year to turn positive. Chart 2 also shows that the SPX has a long way to climb to reach its broken trendline that defined its last three-year uptrend. It also shows, however, the prices found support at the 50% retracement level measured from its early 2016 bottom to its late 2018 peak. That's pretty normal and somewhat encouraging. The weekly bars show the late 2018 downturn being contained, but leave the question of upside potential in some doubt.

12/21 U.S STOCKS ARE NOW IN A BEAR MARKET ... This week's drop by all major stock indexes below their early 2018 lows confirms that U.S. stocks have entered a bear market. Some parts of the market have already crossed the -20% threshold which also defines a bear market. They include small caps stocks and the transports, while the Nasdaq may be there by the end of the day. The energy sector has already lost dropped more than -20%, while several other sector SPDRs are dangerously closer to that bear market threshold which include consumer cyclicals, financials, industrials, materials, technology, and communications. Cash is usually the best place to hide in that weaker environment. What's especially unsettling is that the Fed (and most economists) don't seemed that concerned. They keep assuring us that the U.S. economy remains strong. But what about weaker foreign economies? If your best customers are losing their jobs, your company is in trouble. The same is true of weaker countries who buy your products.

BY JOHN MURPHY

PS: I agree.

12/14 STOCKS ARE GOING BACK ON THE DEFENSIVE
By John Murphy
SHORT-TERM BOUNCE HAS RUN ITS COURSE ... This week's modest rebound in stocks has been unimpressive and appears to have run its course. Lack of upside volume and weak breadth also show that investors have stayed on the sidelines, or have sold into this week's rebound. Sector leadership has also been more negative than positive. Continued selling in financials, materials, industrials, and consumer cyclicals have undercut any rally attempt. The same is true with weak small caps and transportation stocks which are hitting new lows. At the same time, money continues to flow into defensive sectors like utilities, staples, REITS, and pharmaceuticals. Foreign stocks are selling off today and U.S. futures prices call for a lower opening. All of which suggests that this week's short-term rally attempt is failing. Which also reduces the chances for a yearend rebound. We'll take another look at things later in the day, and will post a more in-depth analysis over the weekend.

12/12 S&P 500 EQUAL WEIGHTED INDEX IS ALREADY THERE ... Chart 5 shows the S&P 500 Equal Weighted Index trading within 7 points of its February intra-day low at 3846. In my book, that's close enough to qualify as a retest of a previous low. As its name implies, that version of the S&P 500 gives less weight to larger stocks and more to smaller stocks. And since smaller stocks have been much weaker this year, it may be giving a more realistic picture of the market as a whole.

And it suggests that the February lows are already being tested and appear to be holding.

Which may provide enough of a floor below an oversold market to support a yearend rally. That's not an all clear signal for the nine-year bull market to reach new highs.

If longer-range technical indicators are correct (and I believe they are), any rally from current levels would most likely be part of topping process.

The 14-day RSI line (lower box) also shows two rising bottoms since October which forms a "positive divergence" from the weaker price action. That's another favorable sign that stocks are forming a short-term bottom. That would make for a brighter holiday season


http://schrts.co/9QeWoz

Wed, Dec 5 2018 11:48 AM ET by John Murphy

REVIEWING THE PHILOSOPHY OF TECHNICAL ANALYSIS -- CHARTS ACT AS LEADING INDICATORS OF FUNDAMENTAL INFORMATION -- THIS WEEK'S PLUNGE IN BOND YIELDS SUGGESTS ECONOMY WEAKENING -- FALLING STOCKS TOLD US THE SAME THING A MONTH AGO -- SO DO A LOT OF OTHER INTERMARKET CHARTS -- AND INVESTORS ARE ACTING ON THEM
By John Murphy
WHY WE LOOK AT CHARTS ... I've written several messages since the start of October about why the sharp stock market drop that month was most likely the start of a major topping process. Previous messages used Elliott Waves, the unusually old age of the current bull market (and economic expansion), as well as negative long-term chart indicators as reasons to start taking market selloffs more seriously. A October 13 message also explained that while bull markets may not die of old age, old age increases the odds of bad things happening. In other words, stock market selloffs in the late stages of an aging bull market are more dangerous and have to be taken more seriously. That message also challenged the idea that a strong economy would keep the bull market alive. That's because stocks are a leading indicator of the economy and usually peak first.


YIELD CURVE FINALLY GETS THEIR ATTENTION... My November 17 message asked how financial analysts know that the fundamentals remain bullish when there's no current fundamental data to back up that claim. We know a lot about the third quarter, but very little about the current one (and nothing about the next). That message ended with an explanation of why we look at charts. That's because charts reflect current trends in forward-looking financial markets, while fundamentals give us backward-looking data. After ignoring all the stock warning signs, economists are finally starting to question the strength of the economy for next year. What finally got their attention was this week's plunge in bond yields and the danger of an "inverted yield curve". Which appears to confirm what falling stock prices were already suggesting. Which bring me to the main point of this message. And that's the basic difference between fundamental and technical analysis, and the philosophy of technical analysis itself.

PHILOSOPHY OF TECHNICAL ANALYSIS ... I've written a lot of books on technical and intermarket analysis. The longest and most comprehensive one is "Technical Analysis of the Financial Markets". Although it was published in 1999, it's main principles remain as true today as they were then. The book is more than 500 pages long and includes 19 chapters. [Chapter 13 includes a comprehensive explanation of Elliott Wave Analysis for those wishing to learn more about that approach]. In this message, however, I'm sticking to the first chapter which may be the most important one in the book. It's entitled "The Philosophy of Technical Analysis" which is based on the premise that market prices discount (or anticipate) fundamental and economic information. The first chapter warns that unless the full significance of that claim is fully understood and accepted, "nothing else that follows makes much sense". I still believe that understanding why technical analysis works, and how it blends with fundamental analysis, is more important than knowing how the charts actually work. Because if you don't understand why charts work, there's no point in looking at them.

MARKETS DISCOUNT FUTURE FUNDAMENTALS... Nothing in my books or these messages is meant to disparage fundamental analysis. I believe that fundamental and economic data ultimately determine the direction of financial markets. The problem is how to find out what those fundamentals are while there's still time to act on them. Fundamental data tells us what happened last month or last quarter. It doesn't tell us anything about current or future conditions. So fundamental analysts are forced to deal with old data. That's where charts come in. They usually give us early warnings of future fundamentals. The first basic premise of technical analysis in my book is that "Market Action Discounts Everything". That claim forms the cornerstone of technical analysis. In other words, anything that can effect market prices -- fundamentally, politically, psychologically, or otherwise -- is reflected in the price of that market. In other words, price action is a leading indicator of fundamental information. That claim is based on the idea that price action should reflect shifts in supply and demand for any market. If demand exceeds supply, prices should rise. If supply exceeds demand, prices should fall. That principle is the basis of all economic and fundamental forecasting.

CHARTS MEASURE SUPPLY AND DEMAND... Charts show the direction of a market to determine whether supply or demand is greater. And that helps determine whether the fundamentals are bullish or bearish. If prices rise, they're probably bullish. If prices fall, that suggests that the fundamentals are weakening. The bigger and longer the drop in prices, the weaker the fundamental outlook. In other words, the technical analyst is indirectly studying the fundamentals. Some have even referred to charting as a shortcut form of fundamental analysis. So the claim made in October that the fundamentals of the economy remained strong in the face of heavy stock selling had a hollow ring to it. And now we're starting to find out why. Not every downturn in stocks signals a slowdown in the economy. But every slowdown in the economy has usually been preceded by a downturn in stocks.

OTHER CHART WARNINGS... Falling commodity prices, a rising dollar, and weaker foreign markets have also been warning of slower global growth. This week's plunge in Treasury yields is sending the same message. All of those intermarket trends can be plainly seen on charts and are already discounting economic trends for 2019. And investors are acting on them. They can't afford to wait for next year's fundamentals to find out if they're right.

12/1 DAILY BOLLINGER BANDS SHOW SHORT-TERM STOCK TREND IMPROVING AND A POSSIBLE RETEST OF NOVEMBER HIGH

-- WEEKLY AND MONTHLY BANDS ALSO SHOW SUPPORT

-- BOLLINGER BAND WIDTH, HOWEVER, SHOWS THAT VOLATILITY REMAINS ELEVATED

By John Murphy

https://d.stockcharts.com/img/articles/2018/11/15435886664191324600723.png

11/26 NASDAQ 100 QQQ ALSO LOOKS OVERSOLD ... The technology-dominated Nasdaq market has fallen further than the Dow or S&P 500. Chart 2 shows the Nasdaq 100 Trust (QQQ) even falling below its October low. The good news there, however, its that its 14-day RSI line (top box) is showing positive divergence above its oversold line at 30. And its daily MACD lines (bottom box) could be forming a short-term "double bottom". That could pave the way for an oversold rally attempt. Even if that occurs, however, the QQQ has a lot of overhead resistance to overcome to repair recent technical damage. First and foremost, it would have to clear its 50- and 200-day moving average lines. It would then have to exceed its early November peak near 175. Even then, the QQQ would still remain well below its September highs. That's a lot of lost ground to make up. Especially when its long term uptrend is weakening.

QQQ DAILY


http://schrts.co/Bkafoq

11/21 S&P 500 IS RETESTING ITS OCTOBER LOW ... Since the nearly nearly three year uptrend that started in stocks early 2016 appears to have peaked, an eventual retest of early 2018 lows appears likely. That would mean an eventual retest of February/April lows on the S&P 500 ranging from 2532 to 2553 on an intra-day basis as shown in Chart 1. Heading into the Thanksgiving holiday, however, the SPX is trying to find support above its late October low. That would be a logical chart spot for some bottom-picking to emerge. But the S&P 500 needs to clear some overhead resistance barriers for that test to be successful.

SPX

http://schrts.co/QrAAtX

11/19 FIVE WAVE OCTOBER DECLINE IS A BEARISH SIGN ... The two previous charts shown above present a strong argument that the nine-year bull market in stocks has probably ended. Elliott Wave Analysis is also helpful in studying the nature of market downturns. As a rule, downside corrections normally take place in three waves (called an ABC correction). A three-wave decline often leads to a market rebound. A five-wave decline, however, paints a more negative trend picture. Like the one in Chart 3. The red numerals show my interpretation of the decline that's taken place in the S&P 500 since the start of October. And they show the October decline taking place in five waves. That usually suggests the likelihood of another downleg to come. At the very least, that calls for a likely retest of the October low. But it also increases the odds that the October low may not hold.


http://stockcharts.com/members/analysis/images/2018/20181119004-sc.png

11/19/2018 CORRECTION: ... My message from last Wednesday showed negative readings on weekly and monthly stock charts, and referred back to an earlier message on that same topic. However, I incorrectly gave a date of May 13. The correct date of that earlier article is October 13, 2018. I also mentioned that Elliott Wave Analysis done at that time supported the view that the nine-year bull market in stocks was probably ending. I'm repeating a portion of that October message here with the same charts. I've highlighted a few sentences for emphasis. The earlier analysis speaks for itself. And it speaks of a stock market that appears to have peaked.

WEEKLY CHART LOOKS TOPPY (October 13)... The weekly bars of the S&P 500 in Chart 2 paint a more negative view of the stock market. The top box shows the recent peak in the 14-week RSI line ending well below its higher peak reached at the start of the year. To a chartist, that's a serious "negative divergence" and warns of a potential market top. So do the two weekly MACD lines in the second box which show a similar negative divergence. The two weekly MACD lines also turned negative this week for the first time since the spring. What makes those two negative divergences even more serious is that they're occurring in the fifth wave of the market rally that started at the beginning of 2016. According to Elliott Wave analysis, market rallies normally take place in five waves. That includes three upwaves (1,3,5) and two intervening corrections (waves 2 and 4). The red numerals in Chart 2 suggest to me that the five-wave advance since the start of 2016 has probably been completed. Negative divergences in a fifth wave carry more serious warnings. Notice the triangle wave 4 that's identified by two red converging trendlines that formed during the first half of this year. Since triangles are normally fourth waves, that increases the odds that the last upleg that started this spring may be the fifth and final wave of the two-year rally. To put that in a longer-term perspective, I refer back to a January 6 message I wrote on that subject. That earlier message is repeated below with its accompanying Elliott Wave chart interpretation.

http://stockcharts.com/members/analysis/images/2018/20181119002-sc.png

11/19/2018

READ WAVE 5 STARTED

http://stockcharts.com/members/analysis/20181119-1.html

11/15 STOCKS CONTINUE THEIR NOVEMBER SLIDE -- THE S&P 500 MAY RETEST ITS LATE OCTOBER LOW -- THE REASON SHORT-TERM RALLIES ARE FAILING IS BECAUSE WEEKLY CHARTS LOOK EVEN MORE NEGATIVE -- THE S&P 500 MONTHLY CHART ALSO SHOWS SIGNS OF WEAKENING
By John Murphy

11/12 S&P 500 slipping below its 200-day line.

http://stockcharts.com/h-sc/ui?&s=$SPX&p=D&y=0&m=5&d=0&id=p40044444550

11/9 TEST of NDX 100

http://schrts.co/eALWim

11/9 TEST of SPX 200

http://schrts.co/hECbWt

11/7 Wed, Nov 7 2018 11:33 AM ET

THE DOW LEADS NOVEMBER REBOUND -- THE S&P 500 IS BACK ABOVE ITS 200-DAY LINE --

SO ARE THE QQQ AND XLK --

HEALTH CARE PROVIDERS LEAD THE XLV -- SO ARE ABBOTT LABS, JOHNSON & JOHNSON, AND MERCK


By John Murphy

11/2 HOURLY BARS SHOW OVERHEAD RESISTANCE LEVELS ... The "hourly" bars in Chart 5 show more resistance barriers existing above the S&P 500 more clearly. The flat red line shows the SPX backing off from initial resistance at 2753 formed a couple of weeks ago. It may now retest its underlying "price gap" formed earlier this week (green box). The more important barriers are the blue horizontal lines which mark Fibonacci retracement levels measured from the October top to its bottom. The SPX is now struggling with the 38% retracement level which is the lowest blue line. Stronger overhead resistance is normally seen at the 50% and 62% retracement levels. The SPX needs to clear the upper blue line (and the October 17 intra-day peak at 2816) to reverse more of October's chart damage. At the moment, the market's rally attempt is in danger of stalling.

10/31 SHORT-TERM STOCK BOTTOM APPEARS TO BE IN PLACE -- SMALL AND MIDCAP INDEXES BOUNCE OFF FEBRUARY LOWS -- S&P 500 BOUNCES OFF SUPPORT -- AND MAY BE HEADING FOR A RETEST OF ITS 200-DAY AVERAGE
By John Murphy