The Big Picture
If we look at the secular bull market that started in 2009, we have a clear 5 wave pattern that has taken more than ten years to mature. There are currently three interpretations of how this pattern can be interpreted, which can give us clues on what the next move will be.
- Red – This count has wave 1 ending in April of 2010, followed by a relatively quick and shallow 2nd wave. One of the guidelines in Elliott Wave Theory is that when wave 2 (or 4) is quick and shallow, expect wave 4 (or 2) to be complex and deep. This is known as the Rule of Alteration, which states that the two corrective moves in a 5 wave pattern will be different and non-matching in both size and complexity.
That being said, wave 4 started in late 2018 and ended at the COVID low, ending one of the toughest corrective periods in nearly a decade. This was followed by the final 5th wave into the January 2022 top.
What has followed has been a secular bear market where 2022 was the (A) wave. This was followed by a cyclical bull market, which is the (B) wave. What will follow this move higher will be the (C) wave, which should retrace all of 2023.
- Blue – This interpretation of the secular bull market is identical to the red count above, except in one specific way – we are still in the secular bull market. Instead of the final 5th wave of the secular bull market ending in January 2022, it is still developing.
- Green – This interpretation of the secular bull market has the 2022 top as the end of the large 3rd wave. This means that 2022 was the end of the large 4th wave, and we are building up for a vertical move higher, which would be the halfway point of the final 5th wave.
I find this count to be a low probability. Until SPX breaks above 5050 in a vertical fashion, I am not taking this count seriously.
Now that we have the aerial view in place, all that matters is how this final move in 2024 is being interpreted, and what levels/patterns can tell us what count is in play. So, if we focus only on the final 5th wave of the secular bear market, you can see specifically where the 3 counts diverge.
The red count has been my primary for some time. It states that we are in the (B) wave of a secular bear market. This should be followed by a large degree (C) wave that would retrace all of 2023.
My concerns with this count is that the (B) wave appears to be a 5 wave move. It can be counted as a complex corrective pattern (WXYZ); however, these patterns are rare on such a large time scale. Also, the (B) wave is now longer than the length of the (A) wave, which is also rare to see.
The blue count asserts that 2022 was a very deep and complex 4th wave, which followed a very shallow and simple 2nd wave in June of 2020. Though this interpretation is seemingly extreme, considering the length and depth of the 4th wave in 2022, what makes me seriously consider it is the pattern that 2023 has taken. It is a textbook diagonal pattern, which only shows up as either the 1st wave (leading diagonal) or the 5th wave (ending diagonal).
The rules that define an ending diagonals pattern are as follows:
- It is a 5 wave move.
- The 4th wave is very deep, and tends to go into 1st wave territory.
- Each of the 5 waves is made up of smaller 3 wave patterns.
Now, compare this template to what has unfolded in 2023 – 2024.
It is difficult to interpret this pattern in any other way. And, for this reason, I have been considering the blue count much more seriously.
I have struggled with the blue count because it seemed forced. In order to make it work, you would have to force the 2nd wave to be the June dip in 2020, when the first obvious correction was in September of 2020. Furthermore, it would require one to make the bear market of 2022 a small degree dip in a larger uptrend, which also seemed forced.
Neither of these qualms breaks any rules, it is simply rare to see the them in play on such a large degree. However, the obvious diagonal pattern began unfolding in late 2022 has me willing to look past this.
In conclusion, the red or blue counts best fit the price data going back to 2009. They both require one to accept rare occurrences, which spells out the complexity of the 2022 – 2023 market patterns. However, what they both have in common is what is important – heightened volatility should return soon, and be the norm for the next year or more.
How these two differ is also worth noting. The C wave in a correction is usually considered the crash. Waves A and B are the setup. So, if the red count is in play, I would expect 2024 – early 2025 to be the C wave crash. We will know this because the C wave will be a 5 wave pattern pointing down.
The blue count would be the (A) wave, which would be a 3 wave pattern pointing down. If this is the case, we should see a deep retrace in 2024, followed by a notable (B) wave bounce into 2025. This would put the start of the (C) wave crash into mid-late 2025.
Positions Report of Nvidia, Bitcoin, and Microsoft
Microsoft
Microsoft is completing a very large 3rd wave, which started at the 2009 low. The halfway point of this move higher takes us right into the $415 region, which is where MSFT is currently stalling. If this count is accurate, then the coming volatility will take us back into the $310 – $190 region, which will set up a generational buying opportunity for the large degree 5th wave to follow. Note how momentum and volume are both trending lower as price trends higher. This is classic 5th wave behavior, and supports the above thesis.
If we zoom into the final 5th wave higher that started at the 2022 low (bellow), we can see a very mature 5 wave pattern that has formed. Also, the final 5th wave of this larger 5th wave is complete, while momentum and volume continue to fade.
What I find interesting is that the midpoint of the final 5th wave move higher takes you exactly to $415. MSFT remains one of the cleanest patterns that I track, and it appears that we have a fully formed 5th wave of a 5th wave of a 5th wave. This is concerning, and tilts the balance of risk to the downside from these levels.
Nvidia (NVDA)
The pattern is a clear 5 wave move that started in October of 2022, with the large gap in 2023 being the midpoint of this move. That puts us in the final 5th wave, which needs a smaller 4th wave drop and 5th wave swing to new highs in order to complete. Nvidia looks like it can push higher.
Bitcoin (BTCUSD)
The only update that I have is that I have raised the breakout zone for Bitcoin, which will determine if the correction is still in play (green) or if we are taking the more direct path higher (blue). We need to go vertical over $49,360 in order to confirm the blue count. Below this level and the door remains open for a move back $38,000 – $36,000, which would complete this correction.
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