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.
Broad Market Technical Analysis
Price Analysis
When you funnel the global community of investor into a quantifiable arena, like the stock market, interesting and repeatable patterns emerge. These patterns are the basis of technical analysis, and are used by analysts to predict market trends and establish risk parameters. The discipline of Elliott Wave analysis is simply an in depth study of these repeatable patterns, which provides the best context to market behavior that I know of.
The fundamental idea is that markets move up in a 5 wave pattern, and once this 5 waves pattern completes, we then see a 3 wave retrace/correction, which will make a higher low. This simple movement is not only happening on all time frames, and in all markets where people interact to find price discovery, but it is fractal. So, a small 5 wave pattern develops into a larger one, which then develops into a larger one, and so on.
Because of the fractal nature within market patterns, we are able to fit the entirety of price information into a cohesive pattern. This means that the price action from the 1929 top, and 1933 bottom has an effect on the current 2024 price action. The below chart is the entirety of the Dow Jones Industrial Average’s price information, which is organized into an on-going Elliott Wave pattern.
The reason that I am providing this chart today is because I want our readers to understand the larger backdrop of the current market. Within this context, the 1929 top to the 1933 bottom, was a very large degree 2nd wave. What followed has been a 3rd wave within the same large degree time frame. When you analyze the internal wave structure, it appears that we are coming to the end of this large degree 3rd wave, which is suggesting the start of a secular bear market. This secular bear market would constitute the large degree 4th wave.
Furthermore, what this pattern is telling us is that the secular bull market that started in 2009 has actually been the 5th wave of this very large degree 3rd wave pattern. The below chart outlines this 5th wave, and organizes it into a its own 5 wave pattern.
We can further dissect this analysis and focus our attention deeper. According to the wave pattern above, the COVID low started the final 5 wave pattern within the larger 5 wave pattern above. As stated prior, these patterns are fractal, which allows us to organize each move into a cohesive pattern.
The below chart focuses on the smaller 5 wave pattern that started at the COVID low. With the above information in mind, we are able to have the proper context when trying to understand the current market. As of now, I have 2 potential scenarios on how to understand the final push in the secular bull market that started in 2009.
Blue – This count has the 2022 bear market as a 4th wave within a larger uptrend. What this means is that the 2023 bull market is the final 5th wave, which is taking the shape of an ending diagonal (I discussed this pattern in last month’s report here). This is an overlapping 5 wave pattern that is characterized by large swings in both directions. It is very common to show up as a 5th wave. Considering that the pattern is almost complete, if not already, the risk within this market is greater than many believe.
Red – This count is based on the secular bull market ending on January 2022. What this means is that 2022 was the A wave of this new secular bear market, while 2023 was the B wave bounce. In other words, 2023 to now is a cyclical bull market within a secular bear market. If accurate, the next larger drop will take the shape of a vertical 5 wave pattern pointing down. This 5 wave pattern would retrace the entirety of cyclical bull market that started in October of 2022.
If we zoom in on the ending diagonal pattern that started in October 2022, we can get an idea of how much farther this market can stretch. We are currently in the toping zone between 5145 – 5345. As long as we hold 5090 SPX, we can keep pushing higher. Below 5090 will be the first warning to the bulls. A break below 5050 and then 4945 SPX will confirm that a larger top is in.
Once a top is in place, we can then get a better idea of whether the red or blue count is in play. The red count will be a large degree C wave, which always takes the shape of a 5 wave pattern. It would be a more direct path to our final downside targets. The blue count would be less of a direct path, which would have large bounces followed by breakdowns to new lows. It would be messier, and characterized by a multi-month rangebound market.
In concussion, if we are entering a secular bear market, this does not mean we should leave the markets. It simply means that we will have a period line 2000 – 2013 where the market goes sideways. These sideways periods have bear markets that are punctuated with multi-year bull markets. It is a period where buy and hold tends to struggle, and where a more active approach with a risk management focus could potentially navigate it profitably.
Positions Report of Nvidia, Bitcoin, and Microsoft
Nvidia (NVDA)
Nvidia has either topped, or will see one more swing to, at least, the $1025 level. Price is in a wedge pattern and how it breaks will likely be the deciding factor. If we do break lower, the odds will favor a top. However, as long as it holds above $785, and then breaks above $915, we could see a new pattern develop that can take us higher in an extended 5th wave. Below $785 and the top is in for NVDA.
Bitcoin (BTCUSD)
There is no reason to doubt the above uptrend pattern in play as long as critical support holds on any weakness. The higher Bitcoin goes, the higher this critical support is raised. Today, the level that must hold in $42,500.
We are do for a pullback, which would be wave 4 of 3. These targets are around $57,000 – $48,000. Remember, $57,000 was strong resistance, and it is now strong support. If we get back to this price, we will likely add. However, we are in a 3rd wave; one we have accumulated for going back to late last year. Third waves tend to be marked with shallow pullbacks that leave investors behind. So, if we continue to see a push over $70,000, the odds will start shifting that the low is in for this drop.
Microsoft (MSFT)
MSFT broke the February 13th high for a day, before falling back. The push higher appears to be a 5 wave pattern. It’s hard to believe, but this 5 wave pattern is wave 5 of 5 of 5 of 5 of 5, going all the way back to 2009. Below $397 and the top is in.
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