Cycles still show an immediate low might be premature

US Equity markets remain trending lower and a test of August lows looks increasingly likely given the ongoing resilience in TNX and DXY. 

S&P’s rally proved short-lived as September futures reached the first meaningful upside target before turning back lower.  S&P’s late Friday selloff directly coincided with TNX pushing back higher from 4.209% to above 4.25% by the close. 

Seeing some evidence of Treasury yields and US Dollar turning down will be paramount before expecting much of a lasting bounce in Equities, technically speaking.  Keeping a close eye on the Treasury and Foreign exchange markets remains important.

Breadth finished mildly positive as Energy and Utilities provided the best sector leadership.  Meanwhile Industrials, REITS were the biggest laggards in Friday’s trading.  However, most of the other sectors were muted, and Technology, to its credit, finished positive by +0.12%.

As I discussed mid-day Friday through Flash Insights, S&P could possibly rally to 4477-8 before giving way (Which was the 1^st of 3 possibilities).  The fact that this lined up with a 38.2% Fibonacci retracement area along with a 100% alternative wave projection and a downtrend line from highs early this week made this a resistance target to consider.

Heading into next week, the following areas are important:

S&P Futures Support 4443, 4350, 4260

Resistance-                  4477, 4547

I’ll list some of the issues again that were discussed yesterday for those who might have missed yesterday’s comments.  The following are problematic:

1. Elliott-wave structure seems to indicate a five-wave decline from 9/1 peaks
2. SPX broke former highs from 8/24 peaks also, which damaged the short-term structure
3. VIX has confirmed TD Sequential “13 Countdown-Buy” exhaustion signal today-9/7
4. AAPL 0.04%  decline has gotten a bit more severe, and temporarily bottomed near Aug. lows
5. US Dollar nor US Treasury yields do not yet look to have peaked, but look close
6. Sentiment is not yet bearish despite this decline to SPX~4451
7. Seasonality remains sub-par for the month of September
8. Cycles which normally turn higher during pre-election year Septembers have not done so

Technical Positives:

1. Technology along with Industrials remain trending higher and have not violated uptrends vs. the Equal-weighted SPX
2. There remains a chronic lack of defensive trading.  While Friday did show Utilities strengthening, this hasn’t been a recurring theme.
3. Intermediate-term cycles remain constructive, and show rallies into next year, despite the potential for near-term downside volatility
4. Despite US weakness since late July, US is holding up better than many other European and Asian countries.  Much can be said about US resilience
5. Monthly momentum indicators like MACD remain positively sloped

China looks to have turned back lower after just a minor bounce

As shown below, the Hang Seng China Enterprises index (HSCEI) has broken back lower to multi-day lows, violating a minor uptrend of the recent bounce as of Friday’s close.

This index I like to refer to as the “liquid way” to play China, given the H-shares, vs. Shanghai Composite which is A-shares and not as easy to trade.

This week’s development is a clear negative and makes HSCEI vulnerable to a possible retest of recent lows. 

Relative charts of SPY 0.14%  vs FXI 0.58%  (not shown) remain trending steadily higher and show no evidence of any upside exhaustion on either weekly, nor monthly charts. 

Overall, this means that US stocks should continue to be favored vs Chinese stocks and no technical evidence is present that would indicate a possible change of this ongoing trend.  Given the duration of analysis on both weekly and monthly, this could potentially last another few months.  Thus, investors will require patience and selectivity before expecting any sort of meaningful bottom in Chinese Equities and any start to outperformance over US indices remains very much premature, in my view.

SPX 80-day cycle should bottom by the end of next week

One of the more accurate cycles for SPX over the last few years is the 80-trading day cycle, which has pinpointed quite a few of the major highs and lows in recent years.

This turned down on schedule in July and now should bottom by late September before pushing higher into late October.  It then pulls back into November before turning back up.

While many other cycles affect the US Stock market, and should be considered, this is just one example of one that’s been accurate thus far and bears watching carefully for evidence that it might continue to work.

Based solely on this cycle alone, S&P likely will have stopped moving lower by the first week of October and should likely begin rallying.

SPX Cycle composite seems to suggest a brief reprieve by October, but then potential weakness into mid-November

When combining several other cycles which show harmony to the 80-day cycle, it’s possible to have a bit more understanding of the possible trajectory of US Markets and what might be in store.

While this composite also arguably makes a brief bottom by early October, the rally isn’t nearly as strong before this turns back down again into November.

IT’s important to note that this daily composite actually is a bit more bearish than the weekly composite which goes back 100 years and involves some lengthier cycles which might be considered when making intermediate-term projections (But are not shown here).

As I’ve discussed before, the pink line represents amplitude only, not magnitude.  Thus, an outsized decline by the pink line lower or higher does not necessarily mean that indices have to make a similar move.  The turns are most important, not the magnitude of the move.

AAPL cycle shows stock to likely have bottomed by October

Finally, it’s worth paying attention to AAPL’s own cycle composite, as this stock remains a key weighting within SPX and QQQ.

AAPL’s decline seems to have arrived on time based on this model and could bottom also

October before turning back higher into year-end.

Note that similar to SPX, this also makes a brief dip into November before moving higher.

Given AAPL’s underperformance in the last month vs. Technology relatively speaking, it’s important to pay attention to what historical cycles have projected for AAPL and what might be in store for the weeks and months ahead.

Overall, despite $172 being a big area of support for AAPL, I suspect that the stock’s weakness very well could be complete by October, if this composite is any guide.

Bottom line, the near-term technicals of AAPL will be more important to rely on than cycle composites.  However, one might find these helpful to consider as one input when making decisions.  Have a nice weekend.