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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 July 5, 2019 All four major U.S. stock indices tracked each week by the Weekly Data Charts newsletter posted weekly piece rises of varying magnitude for the first week of July. Both the S&P 500 Index and the Dow Industrial Average ended the week at new all-time weekly-closing prices. The Dow Industrial Average posted a weekly price gain of +322 points (+1.21%) to close at 26,922, finally achieving a new all-time weekly-close high above its September 21, 2018 weekly-close at 26,743. Along the way the Industrial Average posted a new all-time daily-close price high on Wednesday, July 3 at 26,966 that topped its previous all-time daily-close high from October 3, 2018 at 26,828. The broad-based S&P 500 Index performance for the week mirrored that of the Dow Industrials. It posted a weekly price gain of +48.65 points (+1.65%) to close at a new all-time weekly-close high of 2,990.41. Along the way it also posted a new all-time daily-close high on Wednesday, July 3 at 2,995.82. The fact that the Industrial Average has finally confirmed the new all-time price highs that the S&P 500 has been making since the first of May is a technical positive for the U.S. stock market that strongly suggests that the price trends for both indices will remain upward on at least an intermediate-term basis. The technology stock-heavy NASDAQ Composite Index posted a weekly price rise of +155.55 points (+1.94%) to close on Friday at 8,161.79. Along the way it also set a new all-time daily-close high on Wednesday, July 3 at 8,170.23. But, it failed to end the week at a higher weekly close high than its Friday, May 3 close at 8,164.00. The Dow Transportation Stocks Average eked out a very tiny weekly price gain of just +23 points (+0.22%) to close at 10,485. Although this was the fifth consecutive weekly price rise for the Transports Average it remains below its all-time weekly-close high from September 14, 2018 at 11,570 by -9.4%. Even more disturbing is the fact that after five consecutive weeks of price rise the Transports Average is also below its post-December 24, 2018 “recovery rally” daily-close high from April 24, 2019 at 11,098 by -5.5%. For the Transports Average this is a “lower high” that creates a “pennant” or “triangle” chart formation on its price chart since its December 24, 2018 major intermediate-term correction price low. The Transports Average has failed to confirm the Dow Industrial Average “recovery rally” since December 24, 2018 by posting a new and higher price high than its April 24, 2019 price high. This is a classic “Dow Theory” confirmation failure” and thus casts some doubt on the ability of the two Dow Averages to maintain their rising price trends in place since December 24 of last year. For readers who might think that a “Dow Theory” up-trend confirmation failure is no big deal when all three other major indices confirmed each other’s rising price trends by making simultaneous new all-time price highs the Weekly Data Charts newsletter would like to point to October 11, 2007 as “Exhibit A” for why the “Dow Theory” confirmation failure is potentially a very big deal. On that day the Dow Industrial Average and the S&P 500 both posted new all-time daily-close price highs and the NASDAQ Composite posted its highest daily-close price since the October 2002 end of its “” bubble crash. But, the Dow Transports Average failed to confirm the new all-time high made by the Industrial Average and was in fact -8.5% below its all-time price high it posted three months earlier in July 2007. What followed was the most damaging bear market for the U.S. stock market since 1973-74 that lasted through March 2009, a period of 17 months. It is always possible the Transports Average could provide a “Dow Theory” confirmation by rising to a new post-December 24, 2018 price high above its April 24, 2019 high at 11,098, so the jury will remain out on this for a few more weeks. However, Longer-term investment-oriented accounts would do well to keep the “Dow Theory” up-trend confirmation failure this past week in mind for a while longer. Among the many ratios and moving averages of NYSE weekly price momentum data constructed and tracked by the Weekly Data Charts newsletter weekly movements were overwhelmingly bullish for the major stock indices. Moving averages of weekly new 52-week highs rose across all 5-week through 40-week moving average time periods. Moving averages of weekly new 52-week lows fell at the 5, 10, 30 and 40-week moving average time periods. Only the intermediate-term 20-week moving average rose. Moving averages of the ratio of NYSE weekly new 52-week highs divided by that week’s total of both weekly new highs and weekly new lows also rose at all time periods except the intermediate-term 20-week time period. A significant positive for the major stock indices was the fact that at the short intermediate-term 10-week time period there were two bullish changes of direction by the 10-week moving average of weekly new 52-week lows and the 10-week moving average of NYSE weekly new high/new low ratios. The former ceased rising, ending an upward trend that began in the week of March 18-22. The 10-week moving average of weekly new 52-week lows fell to 164.7 new lows from 167.6 on June 28, marking that date and level as a short-term high inflection point. The 10-week moving average of NYSE weekly new high/new low ratios rose to 69.0% from 67.5% on June 28, marking that date and level as at least a short-term low inflection point that ended a decline that started an April 12 high inflection point at 84.0%. Among moving averages of NYSE weekly “percent of stocks rising” ratios derived from NYSE weekly advance/decline statistics only the intermediate-term 20-week moving average declined. All other 5-week through 40-week moving averages rose. Yield spread data from the U.S. bond market was mixed, but on balance bullish for the major stock indices. The Corporate Bond/Treasury Bond Yield Spread fell to +84 basis points from +100 basis points one week ago. This past week’s decline extended a downward trend that started from the most recently-made high inflection point at +113 basis points made on May 31 and exactly coincident with the short-term weekly-close price lows made by all four major stock indices on that May 31 date ( at 2,752 for S&P 500). The Corporate Bond/Treasury Bond Yield Spread is now approaching an important technical support at its April 19 low of +81 basis points. This Yield Spread low was made two weeks in advance of the S&P 500 weekly-close price high made on May 3 at 2,945 that immediately preceded its “pullback” price decline to the May 31 weekly-close low. The “Merrill Lynch Confidence Index” fell for a second consecutive week, dropping to 68.25 from 68.46 on June 28. Its recent high for calendar year 2019 of 69.81 was posted on June 21. While on the surface this appears to be bearish for the major stock indices a look inside the “Confidence Index” calculation reveals that this past week’s decline was due to the fact that although both the “A”-rated Bond Index Yield and the “BB”-rated Bond Index Yield fell this past week, the “A”-rated Yield fell by more. As long as the “junk” “BB”-rated Yield continued to fall, which it did to 4.22% from 4.28% on June 28, corporate bond market conditions continued to be favorable for the major stock indices. Our long-term chart of the S&P 500 Index that uses only its weekly-close prices is also a comparison of the Index with the short-term 5-week moving average of NYSE weekly new 52-week highs. On the S&P 500 portion of the chart we wish to call attention to the fact that the S&P is encountering from below for a second time the dashed blue broken “Trump Rally” up-trend line of rising weekly-close lows it made on November 4, 2016 and March 23, 2018. Its first encounter was on May 3 and the S&P promptly retreated from this former and long-broken line of rising intermediate-term lows. It now gets a second chance to push its way up and through this obviously formidable technical resistance to get back on the bullish side of the line. Based purely on the chart movements and independent of NYSE price momentum data series we have to consider that the chances of a second retreat by the S&P from this resistance line are relatively high. The 5-week moving average of NYSE weekly new 52-week highs shows that this price momentum data series is approaching its own intermediate-term down-trend line of falling intermediate-term highs it made on July 29, 2016 and February 2, 2018 at approximately the 500 new highs level. The 5-week moving average ended this past Friday at 430 new highs, up from 390 new highs on June 28. Upcoming weekly figures of weekly new highs due to be “replaced” in the 5-week moving average calculation will take a large leap upward this coming week from what they have been recently. This past week the “replacement” figure was just 234 new highs. This coming week the “replacement” figure will be 417 new highs. In the week of July 15-19 the “replacement” figure will be 424 new highs and in the week of July 22-26 it will be 502 new highs. The NYSE produced 440 weekly new highs this past week. Based upon the most recent data available we should expect that the 5-week moving average will top out at least temporarily on Friday, July 19. For it to have reached the down-trend line at approximately 500 new highs by July 19 will require that the NYSE produce weekly new highs that average at least 595 new highs/week for the next two weeks. This is a tall order for the NYSE to fill. The most recent time that it produced two consecutive weeks that averaged 595 new highs/week was in the weeks of July 11-15 and July 18-22, 2016 that produced the first data point of its intermediate-term down-trend line at the July 29, 2016 high. Even if the 5-week moving average fails to reach its down-trend line it will still likely top out prior to the end of July. In 2016 its July 29 peak high preceded the associated S&P 500 weekly-close price high it made on August 12, 2016 by two weeks. The second data point along its down-trend line, its February 2, 2018 high at 524 new highs was made one week after the associated S&P 500 weekly-close price high made on January 26, 2018. Very recently the 5-week moving average ceased its strong upward trend from its January 18, 2019 major intermediate-term low at just 27 new highs on May 3 and exactly coincident with the associated S&P 500 short-term weekly-close price high it made that same date at 2,945. The chart history is full of instances in which an S&P 500 short-term price high inflection point was produced in exceptionally close time proximity to a short-term high made by the 5-week moving average. With that moving average calculation about to drop and “replace” weekly figures that will average 448 new highs/week for the next three weeks through Friday, July 26 an abrupt cessation of rise and turn to the downside by the 5-week moving average could take place as soon as the upcoming week. In short, the odds are against the S&P 500 immediately making a successful crossing up through and above the former “Trump Rally” up-trend line that thwarted it back on May 3. Both shorter-term trading-oriented accounts and longer-term investment-oriented accounts should be prepared to see the S&P 500 execute another “pullback” from the broken “Trump Rally” up-trend line during the month of July. But, unless the 5-week moving average falls back down below its recent May 31 low at 296 new highs associated price damage from this likely “pullback” will be quite mild and another attempt will likely be mounted by the S&P to conquer the “Trump Rally” up-trend line in August. Our next chart we hope provides some much-needed longer-term perspective to understanding the current U.S. stock market dynamics. It is a comparison of three moving averages of NYSE weekly new high/new low ratios—the short intermediate-term 10-week, the intermediate-term 20-week and a much longer-term 100-week (approximately 23 months) moving average. We will start by identifying the three major intermediate-term price corrections made by the four major U.S. stock indices since the end of the 2007-09 bear market. They are easily spotted by the fact that they coincided with the only three times that both the 10-week and 20-week moving averages fell through and below the critical 50.0% line in 2011, 2015-16 and 2018. The simple and salient point that the Weekly Data Charts newsletter wishes the Wall Street punditry and financial media would get through their hard-as-cement heads is that in all three cases the 100-week moving average of NYSE weekly new high/new low ratios was moving in the downward direction. In 2011 the 100-week moving average peaked out on May 20, 2011. By the time that the four major stock indices simply collapsed in price in late July it had been falling for two months. By the time the U.S. stock market began its price collapse in July 2015 the 100-week moving average had been falling for a full year since topping out on July 3, 2014. In 2018 the 100-week moving average topped out exactly coincident on January 26, 2018 with the four major stock indices who set new all-time price highs that very same day. The point is that no major collapse of the U.S. stock market since March 2009 has commenced prior to the 23-month /100-week moving average of NYSE weekly new high/new low ratios having established a long-term peak high and turn downward into a falling trend. Awareness of this fact might make the Wall Street punditry and financial media a little more careful about forecasting the imminent collapse of the U.S. stock market during periods in which the 100-week moving average is rising. Such forecasts have a 100% certain guaranteed prospect of being 100% wrong. The second simple and salient point is that no significant price damage was inflected on the four major stock indices in 2011, 2014, 2015 and 2018 until after both the 10-week and 20-week moving averages had crossed below the 100-week moving average, a simple fact that is illustrated by the red arrows on the chart pointing to the dates of those bearish crossings. Unless the 100-week moving average is already moving in the downward direction and has been crossed to the downside by both shorter-term moving averages the historical probability that the major U.S. stock indices might commence a multi-month and major downward price correction is exactly 0.0%. This should be simple enough to grasp that even highly-paid Wall Street analysts and financial media talking heads could get the point, but evidently they cannot. This now brings us to the current stock market environment. The long-term 100-week moving average ceased its decline from its January 26, 2018 peak high on February 1 of the current year and has since been moving sideways in a narrow range between 57.2% and 58.3%. It is currently at 57.4%. If we can be sure that it will commence a rising trend in the near-term future then we can dismiss any chance that the major stock indices might suddenly suffer a sudden price collapse similar to their September 21 to December 24, 2018 price collapse. Unfortunately, weekly ratios due to drop and be “replaced” in the 100-week moving average calculation will average a sufficiently high 76.4%/week from today through Friday, December 27 that the NYSE could quite easily produce lower weekly ratios for an extended, multi-week time period such that the 100-week moving average could resume its downward trend at some point and continue it through the end of 2019. But, starting in the very first week of January 2020 that “replacement” ratio rate will drop to an average of just 45.5%/week through mid-May 2020. We can be relatively confident today that the 100-week moving average will display a rising trend in the first five months of 2020. This means that after December 27, 2019 there will be no chance, a 0.0% probability that the U.S. stock market might endure a multi-week major price correction in the first five months of 2020. While the 100-week moving average could resume its decline since January 26, 2018 in the balance of calendar year 2019 there is only a very remote chance that both the 10-week and 20-week moving averages might fall to cross below it over the balance of 2019. The 10-week moving average just this past week ceased its decline since April and turned up, so it is not even going in the proper direction to effect a bearish crossing below the 100-week moving average. The 20-week moving average topped out on June 21 at 76.0% and has only fallen to 75.6% at this time. With the 100-week moving average down at 57.4% the NYSE will have to begin to produce weekly ratios at or below 50.0% on a very regular basis for the 20-week moving average to have any prospect of effecting a bearish crossing below the 100-week moving average by the end of December. The data on the chart below can give longer-term investment-oriented accounts confidence that there is only a very remote chance that the four major U.S. stock indices might suffer highly damaging major intermediate-term price corrections between today and the end of December, and a 0.0% chance that they might endure major price damage in the first five months of 2020. Our final chart this week is a “stand alone” chart of the Corporate Bond/Treasury Bond Yield Spread since March 2014.This chart displays the yield difference in basis points between the Barron’s High Grade Corporate Bond Index Yield and the 10-year Treasury Note Yield. The two parallel black down-trend lines on the chart are the long-term down-trend channel of falling highs and lows for the Yield Spread that has been in place since April 8, 2011. As the chart shows, the lower long-term trend channel line was last visited on February 2, 2018 at +70 basis points. The price trends of the major stock indices have displayed an inverse trend relationship with the Yield Spread trend for many decades. The chart below shows that over the very short-term since May 31 of this year the Yield Spread has trended downward. The major stock indices have trended upward to new all-time price highs for the S&P 500, Dow Industrial Average and NASDAQ Composite Index. This past week the Yield Spread fell to +84 basis points and is now threatening to break down through and below the April 19 Yield Spread low at +81 basis points. If the Yield Spread were to achieve a downside “breakout” through and below this recent low inflection point then it would also break through and below the up-trend line of rising Yield Spread lows in place since February 2, 2018. This would be a hugely bullish development for the major stock indices if it were to be achieved. Having said that, we also must not get ahead of our own data. No downside “breakout” has yet been achieved, and technical support and resistance areas earn those titles for a reason. It could very easily turn out that the Yield Spread beats a hasty upward retreat from the April 19 technical support at +81 basis points and “refuses” the break down through and below its up-trend line of rising lows made on February 2, 2018 and April 19, 2019. In that event, we should expect that the major stock indices would endure the downward price “pullbacks” that are being suggested by the 5-week moving average of NYSE weekly new 52-week highs we showed in this week’s first chart. What we know for sure is that the Corporate Bond/Treasury Bond Yield Spread rests today at an important “decision point” for at least a short-term forward time horizon. It is therefore logical to assume that the major stock indices also are at short-term “decision points”. We should not be surprised if they briefly “pull back” as this week’s first chart suggests will be likely in the current month of July. This week’s chart package presents data that suggests that although short-term price “pullbacks” by the major stock indices in July will be likely, it will be unlikely that any significant price damage might be inflicted. We also provide historical data which strongly suggests that there is only an extremely remote prospect that the four major U.S. stock indices might endure a significantly damaging, multi-week price correction over the balance of calendar year 2019 and no chance whatsoever that any such major price decline might take place in the first five months of 2020.Thomas J. DruittFinancial Markets Research and AnalysisStonehenge Analytics ................
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