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This presentation is solely for informational purposes and not a solicitation to invest. Stonehenge Analytics offers and publishes forecasts of future likely price movements of various financial assets. These are opinions formulated from our cycles-based historical analytical research. They are not, nor are they represented to be investment advice. Individuals or institutions choosing to act on these opinions are doing so at their own risk. Stonehenge Analytics does not warrant or guarantee that acting upon its published opinions will produce financial gain. Past historical performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Individuals and institutions should consult a financial advisory professional before making any investment.Druitt’s Weekly Data ChartsWeek Ending August 9, 2019 All four major U.S. stock indices tracked each week by the Weekly Data Charts newsletter produced their second consecutive weekly price declines this past week. The popular Dow Industrial Average dropped by -197 points (-0.75%) to close at 26,287. Its companion Dow Transportation Average sustained a more serious decline on a percentage basis, dropping by -167 points (-1.61%) to close at 10,207. The broadest-based S&P 500 Index fell by -13.40 points ( -0.46%) to close at 2,918.65 and the technology stock-heavy NASDAQ Composite Index fell by -44.93 points (-0.56%) to close at 7,959.14. At week’s end the Dow Industrial Average was below its all-time weekly-close high from July 12 at 27,332 by -3.82% and the S&P 500 was below its all-time weekly-close high from July 26 at 3,025 by -3.54%. To this point the two-week price declines by these two indices qualify as just short-term “pullbacks” within ongoing intermediate-term rising price trends. This week’s chart package will present evidence which will suggest that the downward price moves to date might also be the initial downward thrusts in what will turn out to be multi-week downward corrections which could knock all four indices back down to their weekly-close price lows from May 31 (at 2,752 for S&P) or lower and consume many additional weeks of time. While the jury is still out on that judgment, evidence is starting to accumulate that the highest weekly-close prices for calendar year 2019 for both the Dow Industrial Average and the S&P 500 Index might have been posted on July 12 and July 26 respectively. Though the NYSE price momentum data and the many ratios and moving averages of that data constructed and tracked by the Weekly Data Charts newsletter provided mixed results for the major stock indices again this week the tilt was definitely in favor of bearish weekly movements for the stock indices. This was especially true among the 5-week through 30-week moving averages of NYSE weekly new 52-week lows, all of which rose this past week. The 5-week moving average crossed above the 200 new lows mark to end at 209 new lows and has been rising since the week that ended on July 19. The next-longer 10-week moving average rose for a second consecutive week to end at 172.1 new lows, a new and “higher high” for its rising trend that began from a major intermediate-term low at just 45.1 new lows made on March 15 of this year. The intermediate-term 20-week moving average of weekly new lows that has been trending upward since posting its major intermediate-term low at 72.5 new lows on May 17 rose again and is now at 151.8 new lows. The next-longer 30-week moving average rose for a second consecutive week, moving up to 117.9 new lows and establishing its July 26 low at 102.8 new lows as its major intermediate-term low inflection point. Only the long-term 40-week moving average failed to rise. It fell to 264.5 new lows from 271.6 on August 2 and is highly likely to continue falling through Friday, October 4 due to the very large figures due to be “replaced” in its calculation that will average 856 new lows/week through that date. The moving averages of NYSE weekly new 52-week highs and also the moving averages of NYSE weekly new high/new low ratios are currently not reliable indicators for future stock indices’ price directions because the NYSE weekly “New High” list is distorted by the extraordinarily large numbers of corporate bonds, preferred stocks, closed-end bond funds and bond fund ETF’s listed on the NYSE that are populating this list. Nonetheless, the short-term 5-week moving average of weekly new 52-week highs suffered a weekly decline to 474 new highs from 489 on August 2, establishing that date and level as at least a short-term high inflection point. The short-term 5-week moving average of NYSE weekly new high/new low ratios also, and for its third consecutive week. It ended on Friday at 70.8%, down from 78.8% on August 2 and from its most recently-made high inflection point from July 19 at 80.2%. At the 10-week through 40-week moving average time periods moving averages of NYSE weekly new highs continued to rise, as did moving averages of NYSE weekly new high/new low ratios. Among the 5-week through 40-week moving averages of NYSE weekly “percent of stocks rising” ratios derived from NYSE weekly advance/decline statistics the 5-week, 30-week and 40-week moving averages all declined while the 10-week moving average continued to rise and the 20-week moving average was unchanged from one week ago. The shortest-term 5-week moving average crossed below the critical 50.0% line to end the week at 47.2%. For the longest-term 40-week moving average this was a bearish change of direction that put its August 2 level on the board as the high inflection point at 54.0% for its rise that began from a low inflection point at 49.4% made on May 31 and exactly simultaneously with the most recently-made short-term weekly-close price low inflection points by the four major stock indices (at 2,752 for S&P). As these figures show, the “percent of stocks rising” moving averages are now showing that upward price momentum on the NYSE across all moving average time periods except the 10-week time period has completely dissipated and at the short-term 5-week time period we now have hard evidence that downward price momentum has been created with the 5-week moving average’s crossing below the 50.0% line. Yield spread data from the U.S. bond market was on balance bearish for the major stock indices. While the Corporate Bond/Treasury Bond Yield spread was more or less neutral for the week at +96 basis points versus +97 basis points on August 2, the “Merrill Lynch Confidence Index” produced a decidedly bearish weekly performance by falling to 64.93 from 66.35 on August 2. This is a new and “lower low” for the “Confidence Index”, taking out to the downside its most recently-made short-term low from June 7 at 66.32. This past week’s decline puts the “Confidence Index” on track to re-test its major intermediate-term low from January 4 of this year at 61.79. Its current level is virtually identical to its December 21, 2018 level of 64.81. Our long-term chart of the S&P 500 Index that uses only its weekly-close prices is also a comparison of that index with the 10-week moving average of NYSE weekly new 52-week lows. On the chart the 10-week moving average has been multiplied by a factor of four for scaling purposes. Levels shown for specific dates noted are actual, unscaled levels. The S&P 500 portion of the chart shows that this index has almost fallen down to its short-term up-trend line of rising weekly-close price lows made on December 21, 2018 and May 31, 2019. We should not be too surprised this upcoming week if the S&P at least temporarily halts its decline since July 26 at this technical price support. A likely very brief upward move to re-test the July 26 all-time high afterward also would not be surprising. However, the S&P now faces two sources of technical resistance to the upside that are in close proximity to each other. The up-trend line of rising all-time price highs made on January 26, 2018, September 21, 2018 and July 26, 2019 is just above the July 26 high at 3,025 by no more than +25 points. And, just slightly above that at approximately the 3,100 price level is the dashed former “Trump Rally” up-trend line of rising November 4, 2016 and March 23, 2018 lows. The “Trump Rally” former up-trend line has proven to be a formidable technical obstacle to further S&P price rise during its rally upward from its major intermediate-term correction weekly-close price low it posted on December 21, 2018. In our estimation upside potential price gain from the current price at 2,918 is very limited and is no more than +6.0%. Potential downside loss is at least -5.7% to the horizontal support line at the May 31 weekly-close low at 2,752 and could be much more. With potential upside gain and downside loss more or less equal over the near term we do not perceive that the current S&P price level is a particularly compelling price entry point for purchase of S&P-based mutual funds and ETF’s. This judgment is supported by the 10-week moving average of NYSE weekly new 52-week lows portion of the chart. What we find particularly discouraging is that the 10-week moving average did not decline appreciably from its recent June 28 short-term high at 167.6 new lows. And, just this past week the 10-week moving average rose up to a new and higher high at 172.1 new lows, potentially achieving an upside technical “breakout” through and above the horizontal resistance line we have drawn across the 10-week moving average highs it made on January 4, 2014, December 16, 2016 and most recently on January 28, 2019. In the two prior instances the 10-week moving average executed immediate downward retreats from these high points that were accompanied by S&P 500 multi-month upward price trends. That did not happen this time, strongly suggesting that the 10-week moving average of NYSE weekly new 52-week lows is about to embark upon a new upward movement likely to last for multiple weeks of time. An examination of upcoming figures of NYSE weekly new lows due to drop and be “replaced” in the 10-week moving average calculation also supports this hypothesis. In the upcoming week of August 12-16 the 10-week moving average calculation must “replace” a figure of 212 new lows. This figure is approximately equal to the current 5-week moving average of 209 new lows and is far less than this past week’s total from the NYSE of 398 new lows. From Monday, August 19 through Friday, September 6 the average weekly “replacement” figure will be 136 new lows/week. From Monday, September 9 through Friday, September 20 the “replacement” figure average will fall further to just 72.5 new lows/week. We can be extremely confident today that the 10-week moving average of NYSE weekly new lows will rise through at least Friday, September 20 and might continue rising through the end of September. The chart below shows a horizontal technical resistance line for the 10-week moving average at its April 6, 2018 high of 331.2 new lows. The 10-week moving average can reach this resistance line by September 20 if the NYSE produces an average of 393 new lows/week for the next six weeks. This figure is nearly identical to this past week’s figure produced by the NYSE. It is therefore very possible that the 10-week moving average could attain that technical resistance mark from April 6, 2018 by that date. The S&P 500 price response to the 10-week moving average attaining that level in April 2018 was to conduct a price collapse between January 26 and March 23, 2018 which lowered the S&P by -9.9% on a weekly-closing price basis in a span of eight calendar weeks. A similarly-sized price decline applied to the S&P 500 all-time weekly-close high made on July 26 at 3,025 yields a downside price target at approximately 2,725, a target price that is approximately the same as the May 31 weekly-close price low at 2,752. Our next chart is a “stand alone” chart of the short-term 5-week moving average of NYSE weekly “percent of stocks rising” ratios derived from NYSE weekly advance/decline statistics using weekly-close data since April 25, 2008. We displayed this chart in last week’s newsletter to show that it had not yet crossed below the critical 50.0% line. It has done so now and could fall further this upcoming week since the 5-week moving average calculation must “replace” a weekly ratio of 55.0% this coming week. But, in the following week of August 19-22 that “replacement” ratio will be just 41.2%. This will be a low enough figure by historical standards that the NYSE will have a better than 50% probability of producing a higher figure that would halt the decline of the 5-week moving average since July 5. We have drawn an up-trend line for the 5-week moving average across its December 21, 2018 and May 31, 2019 rising lows. This up-trend line is at approximately 44.0%. The 5-week moving average can fall to the up-trend line by next Friday, August 16 if the NYSE produces a weekly “percent of stocks rising” ratio of 39.0% this upcoming week. This is exactly equivalent to a weekly A/D ratio of 0.64-to-1. It is also a figure that is right in line with the weekly ratios produced by the NYSE this past week (at 37.9%) and in the week of July 29-August 2 (at 38.6%). For the 5-week moving average to have any chance of falling further and all the way down to match its May 31 low at 39.86% the major U.S. stock indices must record weekly price declines through at least the week of August 26-30 when the “replacement” ratio in the 5-week moving average calculation will be 63.0%. For the 5-week moving average to fall to match the May 31 low by Friday, August 23 the NYSE must produce two weekly ratios that average 30.0%/week or less. This is such a low two-week average by historical standards it will be extremely unlikely that the NYSE might do this. After August 30 the 5-week moving average calculation’s “replacement” ratios will average just 38.3%/week for the next two weeks through Friday, September 13. Historical statistical probabilities will favor that the NYSE will generate higher weekly ratios that will reverse the 5-week moving average to rising from falling in the first two weeks of September. Based upon the best information available to us today we believe that the most likely future course will be that the 5-week moving average will fall to the December 21,2018-May 31, 2019 up-trend line but no further. Associated S&P 500 price decline will be very unlikely to last beyond Friday, August 30 and might not last beyond this coming Friday, August 16. Our next chart compares the S&P 500 Index with the “Merrill Lynch Confidence Index” using weekly-close data since December 9, 2008. The “Merrill Lynch Confidence Index” is a U.S. corporate bond yield spread technical indicator that measures the yield spread between the Merrill Lynch “A”-rated Bond Index yield and the Merrill Lynch “BB”-rated Bond Index yield by means of a simple ratio. The less creditworthy and higher “BB”-rated yield is divided by the more creditworthy and lower “A”-rated yield and then multiplied by 100. As the “Confidence Index” rises the yield spread between the two different credit quality classes of corporate bonds declines, and as the “Confidence Index” falls that yield spread becomes wider. This past week the “Confidence Index” fell to its lowest level since January 4 of this year, ending the week at 64.93 and taking out its previous low inflection point from June 7 at 66.32 in the process. This is unequivocal bad news for the major U.S. stock indices and the S&P 500 in particular. The chart history shows that all three S&P 500 major intermediate-term price corrections since March 2009 were accompanied by falling intermediate-term trends by the “Confidence Index”. By falling this past week to a new and lower low than its June 7 low the “Confidence Index” has marginally broken to the downside its longer-term up-trend of rising February 12, 2016 and January 4, 2018 lows and has reasserted its intermediate-term down-trend channel of parallel red trend lines of successively falling lows and highs since February 9, 2018. This past week’s breach to the downside of the 42-month up-trend line is not so large that we may term it as “decisive”. Nonetheless, it is a downside breach and signal to us that a downward price movement by the S&P 500 Index and other major indices of intermediate-term time dimensions and significant price damage of more than -10.0% is increasingly likely to commence prior to the end of calendar year 2019. This past week’s steep decline by the “Confidence Index” was caused by a large drop in the “A”-rated yield that was not matched with an equally large drop in the “BB”-rated yield. The “A”-rated yield fell by -8 basis points to drop to 2.74% from 2.82% on August 2. The “BB”-rated yield hardly moved at all, ending the week at 4.22% and down by just -3 basis points from its August 2 level at 4.25%. In fact, the “BB”-rated yield low point at 4.21% was reached on July 26 and has not moved below that level since. Meanwhile, the “A”-rated yield has fallen from 2.94% to 2.74%, a -20 basis point decline. We should note that the S&P 500 most recently-made all-time weekly-close price high on July 26 at 3,025 coincided exactly in time with the “BB”-rated Bond Index low yield at 4.21%. This should tell us that unless the “BB”-rated Bond Index yield resumes its decline in the near-term future the S&P 500 will stand a very poor chance of resuming its currently operative rising price trend since December 21, 2018. If the “BB”-rated Bond Index yield begins to consistently rise each week (which it has not yet demonstrated it intends to do) then the S&P 500 can be accurately forecast to undergo a significant and multi-week downward price movement likely to continue until the “BB”-rated Bond Index yield halts its upward yield trend. This week’s chart package presents evidence from short-term 5-week moving average indicators that suggests that the price declines of the four major stock indices which began in the week of July 29-May 3 could continue through August 30 or could halt sooner on August 16. Either way, the S&P 500 Index will be unlikely to fall lower than its May 31 weekly-close price low inflection point at 2,752. But, evidence from longer-term 10-week moving averages and also the U.S. corporate bond market yield spread data very strongly suggest that any short-term rally that follows the expected “bounce” rallies likely to follow the conclusion of the short-term price declines currently underway should be treated with an immense amount of suspicion by both short-term traders and longer-term investors alike. Evidence is accumulating that a highly damaging, multi-week and sustained downward price movement by the major stock indices will commence prior to the end of calendar year 2019. Thomas J. DruittFinancial Markets Research and AnalysisStonehenge Analytics ................
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