For reference to terminology used, please look at technical analysis under our resources section here. Regarding the horizontal lines, black lines represent strong support/resistance, while dark red lines mark very strong support/resistance.here. Regarding the horizontal lines, black lines represent strong support/resistance, while dark red lines mark very strong support/resistance.
Elliott Wave counts are meant to provide context. Each colored count represents the most probable paths given the current price data. There is a pattern unfolding in real-time, one of which will play out. By monitoring price levels that are held/broken, it will help us figure out which one is in play, so that we can better manage risk.
The Big Picture
Many are now calling for the start of a new secular bull market. The consensus went from being excessively bearish in early 2023 to now being excessively bullish. Some of the most prominent bearish voices are even flipping into a much rosier outlook for the coming years.
Though we are open to this scenario, and even game planning for what that would look like, our broad market technical analysis is suggesting caution, for now. One of the primary tools I use to analyze the broad market is Elliott Wave. It is excellent at providing context as well as price levels that will confirm a thesis or negate it. You can read more about it to help follow along here; however, the foundation states that all markets move in 5 waves up in the primary direction, followed by a 3 wave retrace, which then repeats.
With that in mind, the below chart shows the S&P 500 starting from the March low in 2009.
The pattern this secular bull market has taken is a mature 5 wave pattern that has extended into January 2022. The 3rd wave topped where it was supposed to, and the 5th wave into 2022 even extended. From this analysis, the problem with the thesis that we are starting a new secular bull market is twofold:
1) We have not had a sufficient 3 wave retrace of the secular bull market that started in 2009. This would take years to develop and likely take us back to the COVID lows. Though we have seen some sharp and complex drops within this large 5 wave uptrend, we have yet to see one sufficient in both time and price to constitute a legitimate retrace of the secular bull market.
2) This means that is we are starting a new cycle within the secular bull market, we have to be extending the 5th wave that started off the COVID low. The problem with this thesis is that we are already very extended, and 2022 was simply too deep to suggest that we are going to extend too much higher.
This means that the secular bull market that started in March of 2009 likely terminated in January of 2022, or is close to terminating sometime in 2024. We have thus started or are close to starting a secular bear market, which would be the counter move to the 12 year secular bull market that started in 2009.
Where we will pivot, and instead plan for the continuation of this cyclical bull market is.
2024 Price Analysis
If we zoom in on the structure off the 2022 top, I’m counting 2023 as an extended B wave within a larger bear market. The only question is how much longer can this stretched pattern extend into 2024?
There are two interpretations on how I believe the price action can best be explained:
Green – The October 2022 low was the end of the A wave down, and start of the B wave up. The structure of this B wave is in the form of a very complex pattern that is rare to see on such a large scale. If this is playing out, we should see a top in January, followed by a deep retrace into February, which will be followed by one final swing higher into March/April. This will mark a major top.
Red – This count is the same as the above green count. The only difference is that we took a more direct path to the larger top, which would likely end sometime in late January.
2024 Time Analysis
If we analyze the cycles that are in play into the first half of 2024, we can get a good idea on when to expect a major inflection within the markets. These cycles continuously show up at major and minor turns in the market, and tend to have the most significance when they cluster together. Below is the NASDAQ-100, which shows four big clusters of cycles to look for as we in 2024. Two of these are in January and February.
1) January 17 – 30
2) February 15 – 29
More times than not, these cycles mark reversals in the trend. So, what is most important is how the market is trending into them. We monitor these dates closely and I discuss them in my weekly webinars as how we trend into them is key to interpreting how the market will play out in the weeks that follow.
2024 Cycle Forecast
W.D. Gann offered an annual forecast based on a combination of major cycles that tend to play out in the markets over time. Most are familiar with the 90 year cycle, for example, which is one of Gann’s cycles that he monitored, which lends credibility to his cycle research. For example, the panic of 1839 led to a painful depression in American economic history. Ninety years later takes you to the 1929 top, and 90 years after that takes you to the COVID top.
So, by combining the major cycles Gann identified into a weighted average, we can get a good approximation of both the trend and turning points within a given year. For example, the below image is a weighted average of these major cycles for 2022 (below), with what the Dow Jones did in 2022 on top. Note how the forecast mapped the major trends and turning points very closely.
If we take the same weighted forecast for 2023, note how closely it tracked both the trend and turning points compared to how the market traded.
So, using the same techniques, if we apply these weighted cycles to 2024, here is what we get:
The cycles forecast suggests a high in January, a low in March/April, followed by another low in May/June. This will lead to a bounce into the end of the year. Once again, what is important to note is trend and turning points.
These forecasts are not perfect, but they tend to help identify the major turning points and direction within the market. I always start the year with a weighted average of all major cycles, and then identify the one or two that are exhibiting the most influence. So, as we move into 2024, we will likely make adjustments as we go along to help us stay on the right side of these major market moves.
Supporting Markets
The markets that I am currently tracking to help us determine whether the red or green count is playing out are below. The below markets either have much cleaner wave counts, or are major markets that tend to lead tech.
NASDAQ-100 (NDX)
NDX has more room to run higher. My upper targets are 17737 – 18050. The main question in determining if it will run higher is dependent on where NDX bottomed. If it bottomed in October of 2022, then we should see a deep correction followed by a bigger push into these targets into late Q1 of 2024. This would be the green count.
If the low was instead in January of 2023, then this would be the top, with maybe one more minor push into late January. This will be the red count. The tell will be the nature of the drop. If it is a 5 wave pattern, then we are dealing with red; if it is a 3 wave drop, then we are dealing with green.
Microsoft (MSFT)
MSFT has a very clean wave count, and is currently trading at a risky spot. If the 2020 breakout was the halfway point for the 5 wave move off the 2009 low, then the $378 price range is the target for the final swing, which is exactly where price is struggling to break above.
What is concerning is that we have completed a full 5 wave move off the 2009 low, and hit our long term target. There is room for an extension to the $415 region, but the risk is elevated considering we are talking about the final 5th wave within a larger 5th
What this means is that the 2023 uptrend was the final 5th wave, which is still playing out. If we zoom in on 2023, MSFT appears to have room for another swing higher. If we are in the minor 4th wave, the minor 5th wave should take us into the $400-$415 region before terminating.
Ark Innovation ETF (ARKK)
Arkk’s structure is very clean, right now. I believe ARKK has one more larger swing higher, which will complete the large corrective bounce off the December 2022 low. If accurate, ARKK still has one more new low to complete the downtrend that started in 2021.
ARKK is currently in the final move of this corrective pattern, which is playing out as a 5 wave pattern. If you note the current uptrend, it looks like it still needs a 4th wave, which I believe we are seeing, and then should get one more 5th wave higher, which would be targeting around $59. As long as the current drop holds $46, then we should see one more swing higher in a final 5th wave push. Below $46, and the odds start favoring the top being in.
Amazon (AMZN)
Amazon hit our major target that we laid out in October. This stock, along with META and the NASDAQ-100, was the primary reason we were not calling for the top in July of last year. They were showing incomplete patterns and needed a final 5th wave higher, which we now have.
Now that we have this 5th wave, and it hit our target, we have a very mature pattern. Like MSFT, we could extend a little higher, but I will be looking for a reversal soon. How the reversal forms will be very telling – 5 waves down is bad, while 3 waves down suggests that we can push higher.
The Dow Jones Industrial Average (DJI)
Note the pattern off the October 2022 low. It’s hard to look at the messy, overlapping pattern as the start of a new bullish uptrend. In fact, it resembles a corrective, 3-wave pattern. This means that once the current 5 wave uptrend is over, we should see a sharp drop that breaks the October 2022 lows.
In order to negate this thesis, we would need to see a vertical break above 40,000. Short of this, the above scenario best fits the price pattern, which suggests that we have, at best, one more swing higher after a small correction.
The Japanese (Nikkei)
It may seem strange that a tech portfolio would follow the Japanese market, but this is a key market to track for tech. The reason for this is that the Nikkei has led the NASDAQ for many years, and it has a history of topping and bottoming just before the NASDAQ.
That being said, the Nikkei appears to need one more minor swing before completing its final 5th wave. If this happens, we will look for the Nikkei to make lower highs while the NASDAQ makes a higher high for the final confirmation that we are close to a major inflection point in the markets.
In conclusion, the above markets are some of the key markets that can help us identify what larger count in the broad market is playing out – green or red. It appears that stocks like AMZN and the Japanese Nikkei are very close, while MSFT, ARKK and DJI suggest that they have one more swing higher before completing their uptrend. Like all tops, I imagine this one will be a process. Look for divergences as some markets and stocks will top before others. If this happens and we see any continued push higher with fewer names making new highs, then we will have a strong early warning sign.
Macro
In November, the FOMC was steadfast on their stance that rates will stay higher for longer. In December, they shocked the markets with an about-face, claiming victory of inflation with the expectation of 3 rate cuts in 2024. This announcement sent markets vertical, as risky high beta stocks led the way.
What the FED and markets are pricing in is a true soft landing. In other words, inflation got out of control and the FED was able to successfully raise rates at the right speed to bring inflation down from the demand side, while avoiding a recession. Whether this will actually play out is yet to be seen. However, we thought it would be helpful to our readers to see what needs to happen in 2024 in order for this scenario to play out:
1) Economic data needs to continue to soften. However, it has to soften into a sort-of goldilocks range. The balance will be weakening the employment market just enough to reduce core inflation, but not too much to cause a recession.
2) Unemployment needs to go higher, but not too high. As unemployment goes higher, the historic disinflation that we have seen in 2023 will be able to actually reach the FED’s 2% target. As of now, core inflation is still at 4%, which is double what the FED is targeting. Rising unemployment will slow spending, and get core inflation back to the 2% target.
3) Household checkable deposits are strong, and need to stay this way in order to propel the business cycle forward. Though the trend is down, the long-term trend suggests that households are still flush with cash, which is necessary to both avoid a recession and continue the business cycle.
4) Energy has to stay within a sideways trend or continue to trend lower. This is key, as energy was the primary reason for the level of disinflation that we saw throughout 2023. Note below how core inflation has been stubborn between 5-4% throughout most of 2023, yet the headline CPI number kept moving lower.
The reason for this is because energy prices have been in a steep bear market since August of 2022. This has been the primary reason why the CPI number has continued lower, and it needs to stay this way in order for inflation to hit the FED’s 2% target, and therefore succeed in an actual soft landing.
History says this is a tall ask. There has never been an instance going back to WWII where inflation gets out of hand, and then gets back in line without a recession. However, so far, all the economic data in December supports the soft landing scenario. Corporate earnings have reaccelerated, and economic data remains non-recessionary. Households and businesses still have ample amounts of cash, and the employment market, though softening, still remains above the pre-COVID peak in many metrics. Energy prices are trending sideways, and have yet to breakout in a major way. So, until the data shows otherwise, we expect the market to continue pricing in the soft landing scenario.
I/O Fund Portfolio
We are still positioned defensively and will likely look to spread some of our cash into crypto positions as well some of our equity positions that have the clearest path higher. This will be dependent on whatever broad market count has the highest probability of playing out as we move into 2024.
For those wanting information from the analyst team on how we are positioned going into Q1, then keep an eye out for an invitation for two webinars: a 2023 Year in Review webinar and a Q1 Earnings Kickoff Webinar over the next 1-2 weeks. This is when the team will discuss in more detail how we are positioned in terms of fundamentals.
We are holding a defensive position in cash, and will be looking to our hedge signal to help navigate any coming volatility. As stated last year, we do not believe current prices justify a buy and hold mentality, so continuing to be nimble will be what guides any moves we make into early 2024.
Advanced Micro Devices (AMD)
AMD hit our target of $148, and has now seen a sharp decline. It’s worth pointing out the gap down from this region and vertical drop. This is most likely a 5 wave pattern, which is pointing down. For this reason, I am adding an alternative blue count, which has us starting a larger C wave that would retest the 2022 lows. This is not my primary thesis; however, due to the nature of this drop, I have to risk manage for it.
The blue count has a low likelihood as long as AMD stays above $130. As long as we stay above this region, we can see a local bottom and push higher towards $156. This would be my red count, which has us in the final dip before the final swing higher.
The green count would also see us bottom soon, followed by a push towards $158, and a final push into the $170 range.
Based on the AI trend, and how AMD has been overlooked until recently, we lean toward a variation of the red or green counts. This implies that the 2022 low was a major low, and any continued weakness will likely make a higher low. However, the nature of this larger, higher low must be a large 3-wave pattern. We are not seeing a 3 wave pattern from the $148 region, which needs to be monitored. As stated, above $130 and we do not see the need to de-risk.
Nvidia (NVDA)
My long-term target for NVDA’s bullish path has been $575-$600 for many months. I’m still holding to this, and my red count has us in the final 5th wave push higher into this target.
The other alternative, which fits better with the current structure, is that we are actually in a 2nd wave retrace, with final targets around $640. This is my green count, and though it fits better with the move off the November low, the $640 target does not fit with the proportions of the larger 5 wave pattern that started in 2022.
How we will know which one is in play will require two things: 1) any remaining weakness must hold $420. Below $420 and both green and red are a risk of not playing out. Below $420 and the odds start favoring my alternative blue count, which has last August as a major top. 2) Then, we will need to see a breakout above $575 – $600 to confirm the green count is in play.
CrowdStrike (CRWD)
CRWD has likely put in a major low in January of this year. This is evident by the developing 5 wave push off of this low. Note the vertical push higher in the back-half of 2023. It is clearly a 3rd wave, and still needs a 4th and 5th to complete. The question is – are we still in the 3rd wave, which is my green count, or are we starting the larger 4th wave, which is my blue count?
If we break below $225, then we are in the blue count. However, look at the composite index below. It is making a lower low, while price is clearly making a higher low. This supports the green count, for now. I’ll be looking for a low this week, and push into late January to complete 3. Then we should get one final large swing higher after the 4th wave correction completes.
Bitcoin (BTCUSD)
Until Bitcoin truly goes vertical, there are many ways in which this new bull cycle can be counted. We are likely in one of the final dips worth buying, which is targeting $38,000 – $35,000. However, if we are in the start of a sudden 3rd wave, keep in mind that the nature of 3rd waves is marked with shallow corrections that leave investors behind. So, we will likely start adding in the $40,000 region, and layer in as we go lower, or if we bottom and breakout higher. Also, in order for this scenario to manifest, we have to hold $30,000 – $28,000.
Netflix (NFLX)
Sellers have clearly stepped in at the $480 – $495 region. This marked a double, and now triple top pattern, which does warrant caution. As long as this drop can hold $425, the green count is alive. This suggests that we are in a correction within a larger uptrend pattern. If we can hold $425 and turn back up in a 5 wave pattern, then the overhead target is $537-$577. If we go below $425, then the odds start favoring the red count, which has us starting the larger drop back into the $200s.
Microsoft (MSFT)
*Please refer to my section about MSFT in the Supporting Markets section of this report.
Aehr Test Systems (AEHR)
AEHR's technical pattern has always been a mess. If its earnings report is accepted by the markets, we should hold $20.45 and turn higher. If this happens, then the drop we just went through from its high was only a 3 wave pattern, and supports us pushing to new highs in a final swing higher. This is the green count in the chart, and once we break above $39, the odds will favor this scenario.
However, if we drop below $20.45, then we have a clean 5 waves down from the high, which will be concerning. If what follows is a 3 wave bounce, then we will be setting up for a bigger drop. If this happens, we will likely look to de-risk our Aehr position.
Ethereum (ETHUSD)
We now have three series of 5 wave pattern pointing higher, each followed with 3 wave retraces that made higher lows. If we get the vertical breakout after this correction, it will be quite bullish. We are targeting sub-$2000 for this correction. I do not want to see us go below $1850. If we do, the final support is around $1700, which coincides with the below trendline. These levels have to hold if this bullish count is going to play out.
Marvell (MRVL)
There is nothing clean about MRVL’s chart from a technical angle. We have a series of overlapping moves in both directions, which can be interpreted in many ways. For one, we have a crash set up that is active, and a break below $50 will start building the odds that this is in play. This is the red count in the chart above. However, if we can instead hold $50, and then breakout above $61.75, then we can see a push into the $80 – $90 region before putting in a larger top, which is outlined by the green count.
Super Micro Computer (SMCI)
SMCI is a confusing chart to map. Ever since topping, we have been in a chop that has frustrated both bulls and bears. From a larger perspective, this is the count that I am tracking. The vertical move higher is a 3rd wave, and the only question to answer is whether we are still in it? If so, we will see a breakout above $329. If not, we will see a breakdown below $235. Until one of these levels breaks, we can continue to chop around with no discernable direction.
Cloudflare (NET)
So far, this drop is not concerning. It looks like a 4th wave in a 5 wave push into our overhead targets. These targets are $95, $98, $104. This is the zone that we would take gains. This drop we are in can go as low as $72 and still be valid. Below $72 and the overhead targets get invalidated, which will suggest a top is already in.
Chainlink (LINKUSD)
I’m starting to think that we are in the minor b wave drop that we have been looking for. The targets here are between $12 – $9. We have to hold $7.7 if the bullish pattern is going to continue. With an alt coin tracing a bullish path like above, it’s wise to take it one step at a time. The next major test will be holding the listed support zones.
Micron (MU)
MU did well after their earnings report with favorable forward growth meteics. Because of this, we began a starter position at 2%. The long-term technicals fit best with being in a large B wave that will likely target $97 – a triple top. How MU reacts here will be very telling. If we turn down in a 5-wave pattern, we may look to de-risk and target lower prices. If we instead breakout over $97, we will add to our position, as it will be suggesting something more bullish is developing.
What’s Next
Please join the I/O Fund as we hold two webinars in early to mid-January. The first will be a 2023 Year in Review and the second will be a Q1 Earnings Kickoff.
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