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
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.
Supporting Markets
There is always a market leading the one you are tracking. For example, the Canadian TSX tends to lead the US, while the German DAX tends to lead the Canadian TSX. For this reason, we track a multitude of markets that seemingly has no relationship to tech. However, they do when you see that all markets are interconnected, and some can provide clues to where our markets are heading.
NASDAQ-100 (NDX)
When we focus on the NDX chart, we can see a very mature pattern – 5 clean and full waves off the October 2022 low. Price is currently at our long-term target, and warning zones around 17735 – 18000 while providing another warning with internal momentum of this move higher. Note how the composite index has given us 3 lower highs while price made 3 higher highs. Now, look at how the final lower high in the Composite Index is below the moving averages. This tends to mark local highs, at minimum.
The best case scenario that I have for the larger pattern in NDX is that we are actually completing the 3rd wave, not the 5th. This would mean that we should see an 8 – 14% drop with one final swing higher into year-end.
In order to get an idea of what count might be in play, it will serve us to look into the leading constituents of the NASDAQ-100. This takes us into the FAANGs plus MSFT and NVDA, which have been deamed the “magnificent 7.”
Microsoft, Apple, Nvidia, Amazon, Google, Meta, Tesla collectively account for over 29% of the total weighting of the S&P 500 and 40% of the NASDAQ-100’s total weighting. Because of this rare concentration into only a handful of stocks, we can see important companies in other sectors continue lower while the broad market pushes higher. So, the health of these Big Tech stocks is crucial for a continued uptrend within the broader market.
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.
Apple (AAPL)
Apple’s monthly chart looks a lot like MSFT above. We have a completed 5 wave pattern that started in 2016. We pushed higher off the 2022 low with less momentum and less volume than prior swings, which further supports this being a 5th wave. The midpoint of this move is pointing to $197 – $200, which is where AAPL is stalling.
If we zoom into the final 5th wave of this large pattern, we can also see some interesting confluences. First off, we do have a full 5 wave pattern in place, which means any extension higher would be short lived. The mid-point of this 5 wave move also targets the $197 – $200 region, which further support the risk right here on the long-side of this market.
It’s worth noting that Apple has not broken above its December 2023 high. The rest of the market has moved higher without Apple. Considering that this has not happened since the new bull market started in 2022, and that it accounts for such a large portion of the major indexes, this is a warning. Apple has to reclaim $200 and hold this breakout for the market to see a sustained move higher from here.
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.
Amazon (AMZN)
We’ve been spot on with AMZN since August of 2023. It was one of the reasons we were heavy buyers in the fall correction last year, because it was an incomplete 5 wave pattern. Our target was $153 and we have stretched above this price point, while completing a full 5 wave move off the low.
I’m counting this 5 wave move as the C wave in a larger (B) wave. We should see a 5 wave drop form on the next larger correction to confirm this thesis. However, until it reverses, AMZN is still helping the broader market remain elevated.
Meta (META)
META has been one of the strongest FAANGs, as it continues to push higher. Like NVDA it is in the final 5th wave of a very large 5 wave pattern off the November 2022 low. Also like Nvidia, it still needs a 4th and then 5th wave higher to complete the larger pattern. META appears to have higher to go.
Google (GOOGL)
Google best counts as needing one more swing high to complete the 5th wave pattern. The gap down from its last earnings has put GOOGL back around it December 2023 high, with little buying interest since. Unlike NVDA, META, AMZN, and MSFT, it is not contributing to any further upside in the broad markets. A move below $135 will put the top in for GOOGL and take the final swing higher off the table.
Tesla (TSLA)
Tesla has been a large drag on the NASDAQ-100, as it has confirmed the large head and shoulders pattern due to the prior gap down after earnings. It continues to break key support zones and has increased the odds for a move back to $100. In order to confirm a bottom, of sorts, we need to see a move back above $220.
In conclusion, the magnificent 7 in 2023 is turning into the magnificent 4 in 2024. With Apple, Google, and Tesla either well below their December 2023 high, or just above it, these names have not helped the broader markets push higher since. This is a divergence that is concerning to see, considering the importance of these stocks in the current environment.
Russell 2000 (IWM)
Small Caps stirred up a lot of excitement as they led the broader markets higher from the November 2023 low. However, since the December top, they have been lagging substantially. In fact, IWM is currently about 7% below its December high, while the NASDAQ-100 is about 7% above its December high.
Considering small caps are a risk-on play, this is not the type of divergence you want to see. At best, I can see IWM making a 5th wave push into the $210 region. However, if it breaks bellow $185, then the odds favor the top being in for small caps.
Ark Innovation Fund (ARKK)
Arkk is a fantastic proxy for high beta growth. When inflation is decelerating and growth is accelerating, we tend to see ARKK do really well. Like small caps, ARKK went vertical off the November 2023 low. The market was pricing in a soft landing, which included 6 rate cuts into expanding global liquidity. This is the perfect environment for beaten down risk-on stocks.
However, since the December 2023 top, ARKK is current 15% below that high, compared to the NASDAQ-100, which is 7% above its December high. Once again, high beta should continue to lead in a soft landing environment, yet it is back to lagging the broader indexes, which is concerning.
ARKK has the potential for a 5th wave swing into the mid-high $50s. However, if it breaks $44.75, then the top is in, as it will resume its leadership down. If we break below $44.75, I’m expecting it to be a vertical drop, which will further signal a top is in for this ETF.
Dow Jones Industrial Average (DJI)
The Dow has resumed a leadership role, as it is now pushing higher without the NASDAQ-100. If we look at the larger structure, it very much looks like we are in the final move of a large (B) wave.
Note the two distinct moves higher off the 2022 low and from the November 2023 low. These two clear moves higher punctuated an incredibly complicated and messy pattern that is clearly a B wave. Even though the Dow is making new highs, unlike SPX, I cannot count this as a 5th wave move. This means the Dow is leading SPX and NDX in the larger pattern, and it will be a primary chart that I plan to follow on any prolonged down move.
In conclusion, we continue to see concerning divergences between key markets. While risk-on markets like ARKK and IWM are lagging, notably, we are now seeing the NASDAQ-100 start to lag for the first time, when compared to the S&P 500 and Down Jones Industrial Average. Furthermore, within the NASDAQ-100 (and S&P 500), Apple, Google and Tesla are not contributing to this move higher, which is making this push to new highs risky, as fewer key stocks are contributing.
Time Analysis
W.D. Gann was the master of cycles. Through his methods, he was able to provide meaningful time analysis that can help investors track inflection points. Using his methods, we have been able to identify these turning points with a high degree of accuracy. No method is perfect, but Gann’s methods are more accurate than most techniques that I use.
The major time factors (cycles) that are worth monitoring are below.
The first major time factor was late January, which is where the NASDAQ-100, so far, started lagging other markets. In this period, Apple made a lower high, as Tesla and GOOGL gapped down.
The next one is around February 14 then late February. As stated before, we will likely continue to see a topping process, as seen in in the FAANGs above. In other words, markets will top one after the other, as we continue to see more markets top into the February time factors.
Regarding these time factors, what matters the most is how we are trending into them. They do not tell you what will happen, only that something will happen. The vast majority of the time we see a reversal of the trend moving into these periods.
The monthly Dow Jones chart suggests that January and February of this year will be important. The bellow chart tracks various cycles from extreme highs and lows. Gann noted that counting from these lows on the daily, weekly and monthly charts can indicate when a trend reversal will likely happen.
The numbers that tend to mark a meaningful time factor are 45, 49, 72, 90, 144, 180, 360. The chart below counts 180 months from the 2009 low, which takes you to right now. Also, 49 months from the COVID high and 72 months from the 2018 top takes you to right now, as well. This is lining up with a big cycle (the green symbol on the chart) that tends to show up at notable turning points.
Considering that we are trending up into this time factor with a large degree 5 wave pattern in place on the S&P 500, which is being accompanied with notable divergences, it looks like January/February of 2024 will be an important turning point to monitor.
I/O Fund Portfolio
We are continuing to raise cash in our portfolio, while positioning for a potential decoupling within the crypto complex. We have been taking substantial gains in CRWD, MSFT, and moderate gains in NET and AMD. We have also been layering into Bitcoin and adding another alt coin, Solana.
From a charting perspective, it appears that crypto is setting up for a continued push higher, which is strangely contrasted with many equity charts appearing to be completing very mature patterns. This means one of two things: 1) that one of these markets is lying, and based on our pivots, we will be able to make the necessary pivot if this is happening; 2) a catalyst will trigger a decoupling, which would cause crypto to push higher, while equities move lower.
As a practice, I prefer to manage each chart on its own. So, until crypto breaks a critical support zone, which would align it with the coming volatility in equities, we will continue to lean into the charts and what they are suggesting.
Hedge Signal
I asked the creator of our hedge signal, Vincent Duchaine, CEO of WelathUmbrella, to comment on the state of our hedge signal. Here is what he has to say…
The I/O Fund hedge signal is currently in risk-on mode. However, in the original design of the hedging strategy, one of the patterns we back tested was to hedge at a long-term market channel resistance and go long at channel support. For a visual, note the blue channel and how the market historically reacts at these levels.
The results were quite rewarding. However, the issue was that after 10 years of oscillating in this channel, the money that flooded the market in 2020 allowed the Nasdaq to break out of that channel, which is historically rare, and last happened in 1999. So, A new channel emerged around the time we started developing the I/O Fund signal.
If we look at history, there were so few instances of a market breaking out of its larger channel, that it was impossible to conclude that the market would settle back inside of it after breaking out. For this reason, we deactivated that line of code in the original strategy that used these channels to help layer into and out of hedges.
That being said, time has passed and the market has already reacted 4 times to the original channel resistance. This is not an incredible amount of data, but considering that these are lines where the market has reacted numerous times before 2020, I suggested to Knox to consider hedging at that line. We decided that if the market reacts again, we will reintroduce it in the code to the strategy.
When hitting the upper channel on the Nasdaq, there are usually two scenarios that unfold. In the first case, the market reacts instantly and goes down. This has happened several times, including at the end of July last year. In some other instances, like in early 2020 and in August 2018, QQQ slightly overshot the channel, giving time for SPY to reach its own resistance line.
At this moment, it seems that scenario 2 is unfolding and that the Nasdaq has slightly overshot its channel resistance line. Interestingly, SPY just hit its channel resistance yesterday and didn’t manage to break through.
In terms of the internal metrics that make up the hedge, the current market environment is one that tends to precede a risk-off signal. While QQQ sits at an all-time high, market breadth has not been very good since the beginning of the year.
As stated above, small caps and high beta stocks peaked around December 28th while the rest of the broad markets went higher. Internally, fewer stocks are participating as the market pushes higher, and this type of behavior tends to precede volatility.
We built this detection system into the signal, which is one of the reasons it has the ability to trigger relatively close to market tops. As the market breadth continues to degrade, regardless of price highs, the system will move closer to signaling a hedge.
There are other modalities that could trigger a hedge. For example, if we detect a significant defensive movement in the options market, or a sudden rise in volatility. So, the signal is monitoring many areas of the market that tend to signal coming volatility.
One thing that is clear to me is that this market currently carries a high level of risk. Some statistical analysis we recently conducted suggests that, with some of the CBOE Skew readings we recently observed, we can expect (with an 82% historical chance) a correction on SPY greater than the regular 6-7% healthy pullback. More in the range of 10%, which should translate into something around 14% on the QQQ.
Advanced Micro Devices (AMD)
Prior to their earnings report, we had a very bullish count that we were tracking as a potential. This would have required a gap higher, which would have put us in a 3rd wave (halfway point) of the larger uptrend. Instead, the market reacted poorly, as AMD tested critical support around $159.
I’m leaving this bullish count on the chart in green. We would need to see a vertical move $190 for me to start considering it again. I find this count unlikely when I look at other charts, but the potential is still possible as long as we hold $159. Below $159, and the larger top will likely be in. If this is the case, for those that missed our large buying spree of AMD in the $110 – $90 range, will likely get a chance at the prices again.
Nvidia (NVDA)
*Please refer to the above analysis in the FAANG section of this report.
Super Micro (SMCI)
This chart is one of the more difficult ones I’ve had to map out. So, regarding SMCI, I’ll try to keep it to what I do know, which is the vertical moves on heavy volume and momentum are 3rd waves. The question that I have is what degree?
If we put the chart of linear scale, where the Y access is delineated with equal price movements, the below chart appears the be in a large degree 3rd wave. In other words, the move from 2022 – 2023 was wave 1, while the recent correction was wave 2. This would make the vertical move higher wave 3. If true, the larger 5 wave pattern should reach around $900 before completing. Note how this move higher is being met with max volume and max momentum. This is characteristic of 3rd waves.
Now, let’s look at the same chart on logarithmic scale. This is where the y access is delineated by percentage changes instead of equal price changes.
Even though we are seeing max volume and momentum here, the pattern better fits as a 5th wave instead of a 3rd wave. This will also align SMCI with NVDA and META, both need a 4 and a 5 to complete the larger pattern higher.
So, both counts require a drop and push higher to complete either the 3rd or 5th wave move. Below $660 will be your first indication that this 4th wave is underway. A move below $440 will indicate that the larger uptrend is over, for now.
Bitcoin (BTCUSD)
*Please refer to the in depth crypto report here, which was posted last week.here, which was posted last week.
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.
Netflix (NFLX)
Netflix looks like META and NVDA here. The gap higher was a 3rd wave, and it looks like we are getting the 4th wave now. What is missing is a final swing higher to complete wave 5, which is likely targeting $602. Look for divergences on this move higher for confirmation. Netflix needs to hold $525 if this 4th wave wants to extend lower. Below this level, and the odds will favor a top being in.
Crowdstrike (CRWD)
CRWD is in the final moves of a large degree 3rd wave. The midpoint of this move higher could see it push into the $333 region, if we break above $320. However, note the volume and momentum is decelerating as price moves higher. Eventually, this 3rd wave will give to a deep 4th wave, which we will use to buy. Unlike many stocks that I track, CRWD appears to need a large 5th wave to new highs once the coming large 4th wave is complete. Look for a break below $292 to signal the larger 4th wave is underway.
Ethereum (ETHUSD)
*Please refer to the in depth crypto report here, which was posted last week.
here, which was posted last week.
Marvell (MRVL)
It’s difficult to see MRVL in anything other than a large degree (B) wave. Look at how overlapping and messy the uptrend has been since the 2022 low. In fact, while the rest of the market is in a vertical C wave, MRVL is in a diagonal for its C wave, which is a low quality uptrend pattern. If this is accurate, we should see one more swing higher into the $78 – $90 region before topping. If any further weakness breaks below $62, then the top is already in.
Chainlink (LINKUSD)
This is a perfect 5 wave move higher. The 5th wave, which we are in, is targeting $20 – $22. Note how the current push higher is on much less volume and momentum. This is classic 5th wave behavior. So, once it is complete, we should see a deep retrace, at least, back into the prior range we were just in.
Also, this completed 5 wave pattern means one of 3 things: 1) We are only finishing wave 1 of a very large 5 wave pattern with targets over $100; 2) We are finishing the A wave of a 3 wave pattern that is targeting around $60; 3) This is the final push in a very large correction, with targets around $2.
The key will be HOW we correct. Three waves down means the bearish count is dead, and we should buy heavily. Five waves down means that something more sinister is in play, and we need to clock our gains.
Microsoft (MSFT)
*Please refer to the above analysis in the FAANG section of this report.
Cloudflare (NET)
NET appears to be in C wave within a larger (B) wave. It looks like it needs a 5th wave higher, which we are getting due to the current earnings report. As we’ve seen several times, earnings can alter a count or confirm one. So, how the market reacts to the gap will help us determine if we are going higher.
Micron (MU)
The monthly chart of MU is interesting. Note the detrend oscillator is at the same amplitude that marked the 2022 high. However, price is lower and taking the shape of a very messy and overlapping uptrend. The pattern fits a B wave. The detrend oscillator on a 7 day period has a remarkable ability to signal topping/bottoming zones based on prior extreme highs/lows, so it is signaling a warning.
I do think MU has one more swing high in it, which would take us into the $92 or $94 region. If we instead break below $75 on any additional weakness, the top will be in. We need to see a vertical move over $99 in order to suggest something more bullish is playing out.
Solana (SOLUSD)
*Please refer to the in depth crypto report here, which was posted last week.here, which was posted last week.
Recommended Reading: