Our last broad market report entitled “The Magnificent 7 are Falling Like Dominoes; Only 3 Remain” warned investors that risk was building in the markets. Specifically, it was discussed that the current market leaders, deemed the indestructible “Magnificent 7,” were putting in tops one leader at a time. First Tesla put in a top, then Apple, Google and Microsoft, all started making lower highs, while the broad market kept trending higher. As we stated in that report, “When these cycle leaders start underperforming, it usually marks the start of a trend change.”
Just days later, the AI powerhouse and market leader, Nvidia, put in a top on March 8th, while the S&P 500 continued higher. This left only Amazon and Meta from the original Magnificent 7 pushing higher with the S&P 500.
Source: I/O Fund
Sure enough, on March 28th, the S&P 500 followed the Mag 7 down, as we are now seeing volatility pick up for the first time in over 5 months. Now, investors are wondering if this is a buying opportunity in a larger uptrend or the start of something more severe?
In this report, we will show that the sentiment readings over the last several months suggest investors should be cautious. This is backed up by our broad market analysis, which indicates that risk is more elevated than most investors may think. This doesn’t mean we can’t push marginally higher. Instead, it is suggesting that the downside is greater than any additional upside. Interestingly, the last two standing from the Mag 7, Meta and Amazon, appear to be giving the strongest clues that we could see more volatility over the coming weeks to months.
Historic Sentiment
The below graph measures the percentile rankings of the weekly AAII Investor Sentiment Survey going back to 1987. The survey simply asks a group of investors where they believe the market will be going over the next 6 months.
Based on the answers, it provides a percentage of those surveyed that have a bullish or bearish outlook about the markets. It then measures the spread between the bulls and bears to provide a comprehensive reading regarding market sentiment.
It is best used as a contrarian indicator. The idea is that the more extreme the readings become, the closer we are to trend change.
Source: I/O Fund
Based on recent volatility, the participants are starting to get more concerned about the future markets, as you can see the increased number of bears over the last 2 weeks. However, look at the highlighted period November 2023 – April 2024. The spread between the bulls vs. the bears during this 22 week period stayed in the 70th percentile of all bullish readings going back to 1987. Out of these 22 weeks, 13 weeks were in the 90th percentile of all bullish readings.
We have not seen a consistent streak of exuberance that lasted this long within the history of this survey. The closest period was December of 1999 – February of 2000, where we had 18 weeks where the spread between bulls and bears were in the 70th percentile, with 14 of these weeks above the 90% threshold.
This level of exuberance warrants cation based on historic readings. Sentiment is a powerful measurement, as investing is not a zero-sum game. For every buyer, there must be a seller, and when everyone piles into the same side of a trade, willing to pay any price to get more gains, there is only one way for the market to go.
Broad Market
The extreme sentiment readings are coinciding with a potential top, of sorts, unfolding in the broader market. The S&P 500 broke out to new all-time highs earlier this year, which means that the 2022 bear market was just a deep correction within a larger uptrend.
The pattern that has unfolded in this new bull cycle has taken the shape of a common technical pattern called an ending diagonal. This is a choppy, and narrow pattern that traces within a channel and always consists of five waves. Most importantly, these patterns only show up in the final 5th wave, which is the end of a trend.
Source: I/O Fund
Note how we are very far along in the 5th wave pattern, and touching the lower boundary of our 5th wave topping zone. We are pushing higher on fading momentum, which is a typical sign that we see in the final 5th wave of an uptrend.
The breakdown, so far, has made a push into the upper regions of the 5th wave target box less likely. However, until we break below 4950, there is a chance we could push higher before rolling over. It would require the market not making a new low, and then breaking out above the 5225 level.
Source: I/O Fund
Based on the current price information, I believe we are still in a downtrend, which is bets shown in the chart below. The below path in blue shows an overlapping bounce off the recent lows. We can still push higher from here, but as long as we do not see a vertical breakout above 5225, I expect this bounce to fail as we push lower. A break below 5015 will be the first warning, and the final support will be 4950. If we do break below 4950, what my particular style of analysis tells me, is that there is not a path to new highs within the ending diagonal pattern that started in October of 2022. We will need to see a sizable correction, at best, in order to start a new pattern pointing higher. For this reason, it is likely that we see volatility pick up.
Source: I/O Fund
The Mag 2
The final two Mag 7 stocks appear to be supporting the conclusion that a top is in place. Meta, for example, has been tracing the final 5th wave off the November 2022 low. Note how this final move higher has happened on lower momentum. This is common in the final 5th wave of a trend.
Source: I/O Fund
There is a low probability that we hold $406 and turn higher for one more high. However, I find this to be unlikely based on the additional clues within the chart.
The choppy consolidation after their Q4 results resembles a distribution top, which is where we see large institutional trades sell to an eager retail crowd. This was confirmed by the recent earnings report resulting in a large gap below the major trend line, which happened on heavy volume.
Sign up for I/O Fund's free newsletter with gains of up to 370% – Click hereSign up for I/O Fund's free newsletter with gains of up to 370% – Click hereClick here
Also, it’s worth noting the importance of gaps within an uptrend. These are literal gaps between the closing price and opening price, usually on heavy volume. They are key markers within a trend and tend to unfold in 3s: the breakaway gap is the 1st indication that a new uptrend has started, the runaway gap typically happens around the halfway point of the larger uptrend, and the final gap is the exhaustion gap, which tends to happen around the end of the trend. So far, this is exactly what we have seen, and was confirmed with the recent selling gap, which tends to signal a trend reversal.
Source: I/O Fund
Amazon is another Mag 7 stock that is signaling a larger pullback is likely underway. Note the clear 5 wave uptrend off the 2022 low. Just like in Meta, the final 5th wave in Amazon was happening on weaker momentum, signaling that the strength in the uptrend was fading.
Source: I/O Fund
What follows a five wave uptrend is a correction of the same degree. We are unfortunately dealing with a 1.5 year five wave uptrend. If this is what is playing out, this means we should see a multi-month correction, which should retrace most of the final push off the October 2023 low.
Amazon’s pattern is an ending diagonal, which is another piece of evidence supporting the final push will be a top for Amazon. As stated earlier, these patterns are tight, with choppy moves higher that trace a trend channel. They happen as the final 5th wave of a move, and when they end, we tend to see a swift drop back to the start of the pattern.
Source: I/O Fund
The above ending diagonal pattern took 21 days to complete and only 6 days to retrace the entire pattern, which further confirms that this is likely an ending diagonal. Since these patterns only occur at the end of a move, we are likely setting up for more volatility into the coming weeks – months. If the current bounce can break above $190, then we could see an extension of this final 5th wave higher before rolling over.
A Note on Google
The divergences discussed in our last report regarding the Magnificent 7 was the clearest signal that a correction was building. Google was the 3rd of the seven to start making lower highs against the market pushing higher. This was the right call, as the market is now in a clear correction.
However, GOOGL recently pushed to new highs in their last earnings report. I believe this push was the final 5th wave within a pattern called an expanding diagonal. This patter is common in 5th waves, and also lines up with the rest of the market. Note below how the final 5 waves each moved respected the expanding trend channel. If GOOGL closes the recent gap around $157, this will be the first signal that this pattern is in play.
Source: I/O Fund
Regardless, future market leaders will emerge from volatility. They will go down less than the broad market and tend to bottom before the broad market. It is too soon to tell, but this move in GOOGL is one we are watching as a potential market leader when this volatility ends.
Conclusion:
The last six months have been a historic, and nearly vertical move higher. From November 2023 to March 2024, we have not seen even a shallow pullback — which is uncommon. With that came a level of exuberance that has not been recorded before in the AAII Investor Sentiment Survey. The level of greed in the market has not only created extreme valuations with stocks, but it created a tight rope that the broad market had to walk in order to keep pushing higher.
Once the recent volatility broke below the 5080 – 5055 support zone, the odds tilted in favor of a top being in. As long as we hold 4950 and break back above the 5225 region, we can extend this move higher. However, if 4950 breaks, we will have full confirmation that a top is in as the next move tests the 4800 – 4600 region. Because of this, we believe this market warrants caution.
If you own Tech stocks or are looking to own Tech stocks, consider joining us for our next broad market webinar. Every Thursday at 4:30 pm Eastern, the I/O Fund team holds a webinar for premium members to discuss how to navigate the broad market, manage risk, as well as revealing our various long-term game plans regarding stock entries and exits. We offer trade alerts plus an automated hedging signal. The I/O Fund team is one of the only audited portfolios available to individual investors. Learn more here.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
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.
Nvidia (NVDA)
Nvidia appears to be setting up for one more high into the $1050 – $1200 range. Note the pattern from the high is a clear 3 wave move. This looks corrective, which suggests the larger uptrend isn’t over. This is accompanied with the composite index making a lower low, while price is making a higher low. This tends to happen in on-going uptrends.
Below $880 will be the first warning to the bullish case, but this drop can really go as low as $785 and still hold the pattern that would take us higher. As long as any further weakness holds above $785, I still expect to see another high. Below $785 and the top is in, which would have us shift toward setting up buy targets.
Bitcoin (BTCUSD)
While many alt-coins saw a big sell-off over the weekend, which altered their counts, Bitcoin has yet to test even the upper support for this minor 4th wave pullback. So far, it appears that we are in a bull flag, which still needs to chop around above $57,000 before completing. A break below $57,000 will be the first warning that something else might be playing out. However, as long as any additional weakness holds above $48,000, we are treating this as a buying opportunity. Below $48,000 and the larger uptrend pattern is at risk of invalidating.
Microsoft (MSFT)
MSFT is tracing a wedge pattern for the final 5th wave push. I keep going back and forth between the larger 5th wave being a standard 5 wave pattern or a large degree ending diagonal. Based on recent price action, I tend to favor the later. Regardless, both counts have MSFT potentially pushing higher for a final 5th wave swing. Below $397 and the odds favor a top being in. Below $365 and the top is in.
Broad Market Technical Analysis
Price Analysis
Last month, we took a deep dive into the long-term trends that appear to be approaching an inflection point. This analysis positioned the bull market that started in 2023 as part of a much greater bull market that started in 1933. For those that would like this context, please read the opening section in last month’s report here.
We are in a secular bull market, and when this bull run will end is an important question. There are 3 interpretations of the secular bull market that started in 2009.
If we zoom in on the 2022 top through today, we can get a better context on where the market is. These three scenarios are outlined below.
Red Count – This count suggests that the secular bull market that started in 2009 ended in early 2022 for the S&P 500. This would make 2022 the (A) wave in the first corrective move down in a new secular bear market. This would then make 2023-2024 the (B) wave bounce, or a cyclical bull market within a larger secular bear market. How we will know this count is playing out is that the next larger drop will be a more direct, 5 wave pattern. This would mean that 2025 will be a sharp, and devastating drop for those not prepared, as we retrace all of the 2023 cyclical bull market and likely go beyond.
Blue Count – This count has us in the final moves of a blow off top. This blow off top is the 5th wave of an ending diagonal pattern. Within a larger context, this ending diagonal pattern is the 5th wave of the bull market that started off the COVID low. How we will know this count is playing out instead of the red count is that the next larger drop should be a 3 wave pattern, followed by a final push for the bulls that will retrace most of the drop. This count will give us a ~10% trading range into 2025, before seeing the bigger drop.
Green Count – This count has us halfway through with the final 5th wave in the secular bull market. If this is playing out, we will need to hold 4960 and then turn back higher in a direct move that is 5 waves. If this happens, and we break out to new highs, it will make this count a higher probability.
The major support regions 5080, 5055 and 4960. So far, we have taken out 2/3 of these supports, which builds the case for a top being in. We should see a bounce soon, the structure of which will be very important for what follows.
Advanced Market Signals Members receive in-depth technical analysis from our Portfolio Manager, Knox Ridley. Learn more here.here.
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.
I/O Fund Positioning
We continue to hold a sizable cash position; however, not as large as last month. We have been taking gains in various positions as they hit our technical and valuation targets, while not liking many great companies based on current technicals and fundamentals, at this moment. This tactic has naturally put us into cash close to tops.
The one exception we have found continues to be in the AI, specifically the AI memory space. Micron’s (MU) recent report was stellar, and it is showing up in the charts and fundamentals. We made a large move into MU and decided to begin layering into Lam Research and Broadcom, as well.
We always prefer to layer into names that we want to own based on several scenarios playing out. Though we only added 2% in Broadcom, we could easily see this moving into a 10% position. If something changes and we break critical supports across the board, we may stop out of both Broadcom and Lam Research, reduce our risk, and target lower levels. We plan to hedge Micron if this happens.
We also continue to accumulate crypto based on technical levels getting hit. Until critical support levels break, or we start seeing overheating with on-chain metrics, we will continue to follow our game plan and buy the dips.
The below pie chart represents our invested assets, not including cash or hedges. As of now, we are ~35% hedged, and may stop out of this hedge if the green path outlined above starts to build in probabilities.
Nvidia (NVDA)
Nvidia appears to be setting up for one more high into the $1050 – $1200 range. Note the pattern from the high is a clear 3 wave move. This looks corrective, which suggests the larger uptrend isn’t over. This is accompanied with the composite index making a lower low, while price is making a higher low. This tends to happen in on-going uptrends.
Below $880 will be the first warning to the bullish case, but this drop can really go as low as $785 and still hold the pattern that would take us higher. As long as any further weakness holds above $785, I still expect to see another high. Below $785 and the top is in, which would have us shift toward setting up buy targets.
Micron (MU)
MU is still in the middle of an incomplete uptrend pattern. Note how we have gone vertical, which tends to be around the halfway point of a 5 wave pattern. At some point, maybe a little higher from where we are, we will see a 4th wave correction take hold. This pullback needs to hold above $100 to keep the pattern valid. If this happens, we will look to add on the 4th wave pullback, and targeting around $150 – $160 for the 5th wave, as of now.
Bitcoin (BTCUSD)
While many alt-coins saw a big sell-off over the weekend, which altered their counts, Bitcoin has yet to test even the upper support for this minor 4th wave pullback. So far, it appears that we are in a bull flag, which still needs to chop around above $57,000 before completing. A break below $57,000 will be the first warning that something else might be playing out. However, as long as any additional weakness holds above $48,000, we are treating this as a buying opportunity. Below $48,000 and the larger uptrend pattern is at risk of invalidating.
Advanced Micro Devices (AMD)
So far, this pullback appears to be corrective within a larger uptrend. Note how the pattern is a 3 wave drop on decelerating selling volume. Also, the downside is losing momentum, as noted by the divergence in the composite index. At minimum, it appears that we are setting up for a bounce.
What concerns me is that we are below important price supports at $191 and again at $173. If the next bounce is a 3 wave move higher that fails at one of these price levels, it will be a warning sign that we may not get another high. If we can reclaim these levels in a more direct/5 wave move higher, then we can certainly see the uptrend continue.
In order for any of these moves higher to manifest, we need to find support above $158. Any decisive close below this level, would put this count in jeopardy of not playing out.
Netflix (NFLX)
NFLX has been tracing the leading diagonal pattern for 2 years. We are in the final 5th wave of this larger 5 wave pattern, and as long as any additional weakness holds $605, I expect to see one more swing higher before completing. Below $605 is a warning that this may not happen. Below $544 and the top is in for NFLX.
Ethereum (ETHUSD)
The breakdown below $3000 was significant for Ethereum’s structure. This invalidated the classic 5 wave pattern we have been tracing, which was pointing toward $10,000. At best, I see a diagonal pattern playing out, which should see one more high to complete the large 3rd wave.
This is a risky count, and the only bullish interpretation I can find. The reason is because it has the C wave of 3 as a diagonal, and the larger structure is a diagonal. So, this specifies uncertainty within the markets. The current minor 4th wave can drop as low as 2450 and still be valid. Below this level will be concerning.
Regarding the red count, it is very much alive in Ethereum and not in Bitcoin. But, we would need to see a large 5 wave pattern drop below 2015 to make this more likely. As of now, we only have 3 waves down from the high.
Supermicro (SMCI)
So far, we are only seeing 3 waves down from the high. As long as we stay above $775, we can push higher in a final 5th wave push. We need to see a vertical bounce above $775 to give me confidence this might happen. If we break below $775, then the top is in.
Chainlink (LINKUSD)
We only have a 3 wave drop from the high, so far. This is what we wanted, as this correction is following a clean 5 wave move off the 2023 low. We hit our target box, and began buying again. There is a chance that we are only at the bottom of the A wave in this correction. If that is the case, the next larger bounce will be a 3 wave move that fails below $19.80. If we go above $19.80, the odds will start favoring a low. If we go below $8.75, then the larger bullish count we have been tracking could be in trouble.
Broadcom (AVGO)
AVGO is in a rising wedge. It either topped in a 3rd wave or has one more small swing to $1527 before topping. When wedges break, it's usually a sharp drop back to the start of the wedge, which takes us into our buy zone at $1015 – $900. Below $1275 is the first warning and below $1200 will put the top in.
Lam Research (LRCX)
The green count below has LRCX still in the larger 3rd wave. Above $1007 and this is what I believe is playing out. The blue count has LRCX topping in the larger 3rd wave. A break below $900 will confirm this. Either way, I believe LRCX has more room to run, which lines up with the fundamental outlook. So, we will continue to look for places where we can add.
Solana (SOLUSD)
This drop in Solana actually explains the messy structure in the most recent swing higher. It, now, best fits as an ending diagonal, which means that we should see fresh highs. This means that we are in the final push of a 5th wave. The real question will be – what wave is this 5th wave ending? If it is the end of a larger 3rd wave, then the following 4th wave correction will be another great buying opportunity. However, if this is ending the 5th wave, then that will be the top in Solana. Regardless, both counts suggest volatility after we get a fresh high, so we will likely take significant gains if this happens. For this to play out, we must hold last weekend’s low at $119.
If we break $119, then that leads us to the other interpretation, which states that we have topped in the larger 3rd wave and still working through the 4th wave. This would mean that the next several weeks – months will be a range followed by another low below $100. In this scenario, we must hold $77 – $70 or a bigger top will likely be in.
Crowdstrike (CRWD)
CRWD appears to be in a 4th wave. It should find support around $270 if this is a shallow 4th wave, exhibited by the blue count below. However, if we break below $270, we should see a more conventional 4th wave, which should take us the $238 region. This 4th wave can go as low as $218 and still be valid. Below $218 and a bigger top is likely in.
Microsoft (MSFT)
MSFT is tracing a wedge pattern for the final 5th wave push. I keep going back and forth between the larger 5th wave being a standard 5 wave pattern or a large degree ending diagonal. Based on recent price action, I tend to favor the later. Regardless, both counts have MSFT potentially pushing higher for a final 5th wave swing. Below $397 and the odds favor a top being in. Below $365 and the top is in.
Cloudflare (NET)
NET just broke the critical support level at $90. Below here and the odds favor a top being in. I’d prefer to see a more direct drop for confirmation, which we are not getting. Instead, the price action is quite messy, which has me open to another high in a final swing. This is outlined by the green count below. If the next bounce is a 5 wave move, it will become my primary.
Broad Market Technical Analysis
Price Analysis
Last month, we took a deep dive into the long-term trends that appear to be approaching an inflection point. This analysis positioned the bull market that started in 2023 as part of a much greater bull market that started in 1933. For those that would like this context, please read the opening section in last month’s report here.
We are in a secular bull market, and when this bull run will end is an important question. There are 3 interpretations of the secular bull market that started in 2009.
If we zoom in on the 2022 top through today, we can get a better context on where the market is. These three scenarios are outlined below.
Red Count – This count suggests that the secular bull market that started in 2009 ended in early 2022 for the S&P 500. This would make 2022 the (A) wave in the first corrective move down in a new secular bear market. This would then make 2023-2024 the (B) wave bounce, or a cyclical bull market within a larger secular bear market. How we will know this count is playing out is that the next larger drop will be a more direct, 5 wave pattern. This would mean that 2025 will be a sharp, and devastating drop for those not prepared, as we retrace all of the 2023 cyclical bull market and likely go beyond.
Blue Count – This count has us in the final moves of a blow off top. This blow off top is the 5th wave of an ending diagonal pattern. Within a larger context, this ending diagonal pattern is the 5th wave of the bull market that started off the COVID low. How we will know this count is playing out instead of the red count is that the next larger drop should be a 3 wave pattern, followed by a final push for the bulls that will retrace most of the drop. This count will give us a ~10% trading range into 2025, before seeing the bigger drop.
Green Count – This count has us halfway through with the final 5th wave in the secular bull market. If this is playing out, we will need to hold 4960 and then turn back higher in a direct move that is 5 waves. If this happens, and we break out to new highs, it will make this count a higher probability.
The major support regions 5080, 5055 and 4960. So far, we have taken out 2/3 of these supports, which builds the case for a top being in. We should see a bounce soon, the structure of which will be very important for what follows.
Supporting Markets and the Alternative Bullish Count
The majority of price and time information suggest that we are approaching a top, of sorts. However, some charts can be worked into a larger uptrend that can take us into 2025 before topping. This month, we will discuss what I want to see in order for us to pivot our positioning, as well as some problematic markets for the green count.
Small Caps (IWM)
Small caps are the biggest concern that I have regarding the green count. If we are about to embark on the 5th wave of a large degree 3rd wave, typically, we’d be able to see this type of move, to some degree, in all major charts. This is simply not the case in small caps.
IWM is seeing an important confluence of time, price and pattern with IWM. The below Gann chart shows price struggling underneath a confluence of major angles and a cluster of important cycles. Note how the trend was moving into this region, which suggests a reversal is most likely.
If we analyze the pattern going into this important region, it appears that we have already put in a top. I have been discussing for many months how IWM, since bottoming in 2022, has been tracing what appears to be a large degree (B) wave in a much larger correction. The final move of this (B) wave is a 5 wave move higher. This has taken place, and is now breaking the support region that should have held if we are going to push higher.
In the chart below, you can see that we have gaped below the lower trend channel in what appears to be an ending diagonal pattern for the final 5th wave. Since then we are tracing what looks like a 5 wave pattern lower. If we get a small bounce for 4 that holds $200, followed by a 5th wave lower, then we will have strong evidence that our thesis is playing out. This is one of the key charts to watch.
The alternative count is that we have a leading diagonal pattern that just completed. This would also be a 5 wave pattern, and should be followed by a 3 wave bounce that can go above $200, but should hold below $205.
So, the next bounce will be very telling for IWM. If we get a corrective/3 wave move, it will increase the odds of a top being in place.
Semiconductors (SMH)
One of the most important markets, right now, is semiconductors. The reason for this is because this segment of the market has been largely compensating for the weakening Mag 7 from 2023. As long as the AI push holds, and semis lead, we can keep this bull market going.
What’s interesting is that on March 8th, Semiconductors topped while the broad market pushed higher. It’s always concerning when the market leaders do not confirm a new high, which is why we are cautious now. More times than not, the cycle leaders will lead on the way down, when the market reverses.
If SMH decisively breaks below $218, then it is a strong warning that this sector has topped. This will be a warning to broad market, which will likely follow. On the other hand, if SMH can break above $241, then it will support this bull market pushing higher, at least into late April/early May.
NASDAQ-100 (NDX)
Regarding NDX, this chart best shows how the alternative green count will likely play out. In order for this to manifest, we need to not only see SMH break above $241, but I’d also like to see NDX break above 18,606.
If we instead, break down below 17,810 – 17,265 then the odds will start building that a top is building in NDX.
As you can see, we are just above the final support for the green. So, we will need to see a reversal soon, and it needs to be in the shape of a direct/5 wave pattern. If it is instead a 3 wave pattern, it will build the odds that a top is in place.
I’m not sure if you want me to talk about Inflation or Rates. If so, I can coble together those sections from the original report 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.
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.
Advanced Market Signals Members receive in-depth technical analysis from our Portfolio Manager, Knox Ridley. Learn more here.here.
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.
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.
For those new to this analysis, I have written up a detailed introduction here. 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 conclusion, 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.
Supporting Markets
No one doubts that tech has been leading this uptrend higher. Since bottoming on October 13th 2022, the S&P 500 is up just over 40%. During the same time frame, small caps are up only 20%, while the tech heavy NASDAQ-100 is up over 70%, and The PHLX Semiconductor Index is up over 115%.
The consensus belief is that tech is leading the weaker markets, like small caps, higher. If true, then buying these weak markets appears to be a winning strategy, as they have a long way to go in order to final catch up with the market leaders.
However, when we view these markets through the lens of technical analysis, I believe that the stronger markets, like tech, are the ones playing catch-up, while the weaker ones, like small caps, are leading the larger trend. That being said, there are two types of markets – the ones that have topped, and the ones that are close to topping.
Small Caps
The Russell 2000 (IWM) is the most obvious pattern to track. From the 2009 low, we have a very clean 5 wave pattern into the 2021 top. Note how small caps have been trending sideways since the 2022 low, and they are substantially below their 2021 top. This looks like a large degree correction that has one more large leg pointing down before completing.
When we zoom into this sideways pattern, it appears to be tracing a B wave bounce within a larger decline. The key is the final move of the larger (B) wave being a 5 wave push higher. Note how we have a clear 5 wave pattern that tagged our $210 target (below).
Further, the 5th wave is taking the shape of a clear ending diagonal pattern on decelerating momentum. If the next larger drop is a direct 5 wave move, then we have confirmation that we are setting up for a push below the 2022 lows.
There are several markets that resemble the small cap index above. In other words, they have been trending up from the 2022 lows in an overlapping pattern that resembles a bounce within a larger correction. The key is that these markets have trended sideways to up and are well below their 2021/2022 highs. Here are a few examples:
Consumer Discretionary (XLY)
Retail Sales (XRT)
Financials (XLF)
The 2nd type of market is the one that is still in their secular bull market. In other words, while the above markets ended their bull market in 2021/2022, the bellow leaders are completing their final 5th wave of the secular bull market.
Technology (XLK)
The tech sector has the 2022 bear market as a 4th wave drop within a larger uptrend. This larger uptrend is coming to an end soon. Note now clear the 5 wave pattern is off the 2022 low. This 5 wave pattern is mature and full, as we push slightly higher on less momentum.
Industrials (XLI)
Interestingly, Industrials appears to be completing a large 3 wave push to new highs. This appears to be within the context of a large degree ending diagonal pattern.
Home Builders (XHB)
This market looks a lot like the S&P 500. It is completing an ending diagonal pattern for wave 5. Once complete, this should end the secular bull market for home builders.
In conclusion, from a basic understanding of technical analysis, one can see tech leading, with industrials and home builders breaking out to all-time highs and conclude that the weak markets will follow. This is simply not the type of market behavior we see going into a recession. Further, we are in a roaring bull market that seems to have no end, so it’s no wonder we see investors touting these weaker markets, like small caps, as the ones that will start playing catch-up.
However, within the context of Elliott Wave, these breakouts to new highs appear to be in the form of 5th waves, which are close to ending. What this means is that the weaker markets topped first in 2021/2022, while the stronger markets are the ones playing catch-up. This is also why there is such a bifurcation amongst analysts trying to put a cohesive narrative to this strange market behavior.
Divergences
When markets are moving in unison, you have a strong trend. However, when markets start diverging, we tend to see this behavior at the end of the trend. This is what is happening now.
There is no question that big tech has been the market leaders throughout the entirety of this bull market that started in 2022. This is evident by the name given to these leaders – the “Magnificent 7.” However, what we are now seeing is that these market leaders, which were once moving in unison, are now starting to fall like dominoes.
First, Tesla topped in July of 2023, followed by Apple in December of 2023. We then saw Google top in late January of this year, followed by Microsoft in mid-February. What was once the Magnificent 7 is now the Magnificent 3, as the majority of past market leaders are now in a notable downtrends.
One could easily claim that we don’t need these stocks to move higher, obviously. However, when prior market leaders start to fall, more times than not, they are signaling exhaustion in the broader trend. What makes this instance so notable is the extreme weightings that these 4 stocks take up in the S&P 500. Together, they account for ~17% of index weighting. This is a large weight around the broad market, which should not be ignored.
Regional Banks are also diverging with the larger banks. These markets historically move together, and when they start separating, something isn’t right. Regional banks have made a series of lower highs while the bigger banks have gone to test all-time highs. One of these markets is leading, and until regional banks start making new highs, I do not trust this move higher with the big banks.
The transportation sector is also signal a similar warning. The Dow Jones Transportation index is comprised of standard transportation stocks, while the iShares index has the same stocks, except with a higher weighting in the tech focused transportation stocks, like UBER and LYFT. Like the banks above, these two markets tend to move in unison. This is not the case today, as we see a sizable divergence that is not healthy.
The most notable divergence is between long-dated bonds (TLT) and the equities. Bonds tend to top/bottom long before equities get the message. Today, TLT is making a series of lower highs, while equities continue to power higher. The bond market is simply not buying this move higher, which is typically a harbinger for equity volatility.
Time Analysis
Elliott Wave analysis can tell you when a trend is coming to an end. It can also provide levels that must hold or break in order to confirm a pattern will extend or a counter pattern is emerging. Gann analysis provides you with time analysis. Markets move in cycles, and these cycles tend to create inflection points. More times than not, these inflection points mark trend reversals, and on occasions they mark large breakout/breakdown moves. I went through the Elliott Wave analysis for some key markets above, this section will look at the time analysis. Together, they are signaling caution.
Russell 2000 (IWM)
We discussed the concerning price analysis above. This market appears to have reached our target in a fully developed 5 wave pattern. This 5 wave pattern, I believe, is the final swing in a large corrective bounce that started in 2022 and is part of a larger bear market.
When we add the time analysis, we can see another layer of risk. The below chart tracks 3 cycles that have an effect on the price of IWM. Note how price tends to reverse its trend when it moves into one of these cycles. The most important piece of information regarding this cycle analysis is how price is moving into them. As of now, IWM’s price is moving up into all 3 of these cycles clustering right now.
Furthermore, when we place a Gann Fan at the 2018 low, note how the following price patterns reacted to these angles. Today, price is hitting against the most important angle in red. This is the 45 degree angle, and we tend to see strong reversals at this angle.
So, we have a significant confluence of price and time, which in Gann’s world tends to mark a meaningful trend reversal. When we factor this information in with the Elliott Wave analysis showing that we are in an ending diagonal pattern in the final 5th wave, it warrants caution.
Dow Jones Industrial Average (DJI)
I’ve discussed the Dow’s price pattern in several prior reports. No matter how you count this, the uptrend pattern off the 2022 low is setting up for a large pullback. The below chart shows various long-term cycles that have had an effect on DJI’s price movements. Note how we are seeing a cluster of these cycles show up now. When cycles cluster, it tends to mark a meaningful inflection point. For example, the last time these cycles clustered was around the 2020 top.
The NASDAQ-100
This index looks very similar to XLK above. It is completing a large degree 5 wave pattern off the 2022 low, and setting up for some type of trend reversal. Furthermore, it is trending up into a cluster of long-term cycles and hitting the 45 degree angle from the 2018 high. Much like other key markets, there is a confluence of price and time, which tends to mark trend reversals.
In conclusion, we are seeing several key markets trending up into a cluster of key cycles. Many of these markets are also hitting important angles from key inflection points in the past. These angles, along with the cycles tend to mark meaningful trend reversals. When we factor in price analysis, we can see that these same markets are in the final moves of very mature uptrend patterns. Price and time are coming together right now in a way that warrants caution until we see a resolution. If the market instead ignores these angles and cycles, it will be a show of strength that we will factor into our portfolio management.
What If We Are Wrong?
I’ve laid out a strong position for an imminent market reversal. Both time and price seem to be suggesting this is the case amongst multiple key markets. However, all positions must have a point at which they are scraped and a pivot has to happen. Since our inception there have been a handful of pivots we have had to make, once a thesis appears to not be playing out. That being said, my alternative count is below. We would need to see SPX hold 4775 on the coming pullback, followed by a direct, 5 wave push to new highs.
Further, the divergences that I discussed prior would need to resolve. We would need to see all sectors in the S&P 500, along with the lagging FAANGs, resume their uptrend and make new highs. If this happens, you ‘ll will see us layer back into the market for the resumption of the larger bull market as we. Extend this bull cycle into 2025. I find this hard to believe, as most markets, like IWM, simply do not have an alternative interpretation that lines up with the above chart. However, we are prepared to pivot if this analysis is proven wrong.
I/O Fund Portfolio
Because of the warnings stated above, the I/O Fund has taken a barbell approach to our portfolio in 2024. On one end, we are maintaining a defensive posture within our portfolio by holding a sizable cash position. On the other end, we are highly concentrated in market leaders such as NVDA, AMD, and Crypto. This strategy has worked out well for us this year, so far, as we continue to show relative outperformance while also being prepared for a sizable trend reversal.
Regarding our risk management, we have been very clear with the risks we see in this market. As a result, we have gone from being 85% net long in early November 2023 to 30% net long today. We are currently 35% hedged and waiting for our hedge signal to tell us when to go 100% hedged, and thus move toward being market neutral.
The below pie chart is the percentage allocation of our invested assets, not including cash.
Hedge Signal
The below is an update from Vincent Duchaine of WealthUmbrella, who created the hedge signal that we currently use.
Since the start of this year, market breadth has been considerably deteriorating. While some stocks continued their parabolic move higher, several stocks, including high beta stocks have declined considerably since their peak at the end of December 2023. Tesla is probably the most well-known example, being approximately down 35% from its July 2023 peak.
Market breadth is one of the primary components of the hedge signal. The on-going deceleration in market breadth has led to this component rising above the zero line for the third time since the beginning of this year.
This may seem insignificant, but just having a signal above 0 is something we typically do not see in strong uptrends. For example, during the bull market between June 2020 to December 2021, the signal stayed below 0 the entire run, and only rose above zero at the end of that bull market, just before the start of 2022.
Moreover, when the breadth component of the hedge signal rises above the zero line while the market continues to push higher, or even goes sideways, it has a high correlation with abrupt corrections. Though breadth is moving closer to a sell signal within the hedge, it is still in buy, for now.
Another way we could see the hedge signal trigger a sell would be if the VIX rises drastically and enters full backwardation. Some components of the VIX ribbons are already in backwardation, so this scenario is a reasonable assumption to track.
The other component of the signal that could trigger a sell is the options market. This component is less likely to trigger a sell, considering how the market has continued to defy gravity for so long now. This behavior is filtering into sentiment within the options flow. I think the option market is as confused as everyone else, so it will likely not lead to a sell signal.
Regardless, one interesting aspect of the current state of options dynamics is in the SKEW. The SKEW printed a record high a few weeks ago. This is highly correlated with a more a pronounced drop in equities and something we are tracking closely.
Furthermore, with our proprietary market risk indicator comfortably in the red, we believe a more cautious stance in warranted.
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.
Advanced Micro Devices (AMD)
AMD appears to be at odds with NVDA and the rest of the market. The count below is what makes the most sense from the price action; however, it is suggesting a much larger uptrend is underway. I could see something like this happen as the broad market stays within a 5 – 12% range for the remainder of the year. As many stocks and markets make lower highs, AMD will go on to make higher highs, and thus complete the above pattern. I’m willing to hold onto this count as long as any weakness holds $159. Below this level and larger uptrend fails.
Another point of concern, AMD is now below $191. There was substantial institutional activity at this price level. For AMD to move higher, this level has to get reclaimed. We simply do not see block sales of this caliber and price continuing in a 3rd wave. So, as long as we stay below $191, we remain cautious.
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.
Netflix (NFLX)
Note the bearish engulfing candle from last Friday. Netflix started the day green and then ended the day deep in the red. This happened on heavy volume, and it is what is called a key reversal candle. In other words, the type of candle that tends to happen close to a trend reversal. Netflix is completing the 5th wave of a larger 5th wave, so any additional upside should be limited from here. Below $544 and the top is in.
Ethereum (ETHUSD)
Ethereum is setting up for a bounce. Look at how deep the composite index went on this drop. This is typically where bounces occur. I’m expecting a b wave and final leg lower, but we may not get that if the next bounce is a 5 wave move higher. If this happens, it suggests the low is in for this drop.
Ethereum’s uptrend should continue higher as long as any weakness holds $2990. Below this level and my old red count will get reintroduced. As always, and especially within crypto, it’s best to not get married to a count and to be prepared to bail if a support region gets broken. As of now, this is not the case, so we will keep looking up.
Super Micro (SMCI)
The 1st, 2nd and 3rd largest trade in SMCI’s history came within 72 hours of each other, and around the $1065 price level. We are significantly below this level, which implies institutional selling. The next meaningful support levels are $865 and then $775. Below these levels and the odds build that the top is in. We have taken significant gains in this stock. In fact, we’ve sold about 12%, while only adding 6% at much lower levels. So, we have taken our cost basis off the table, plus ~100% gain. If we do see any further strength, we will continue to sell this position.
Crowdstrike (CRWD)
CRWD looks to have topped in a 3rd wave. The last push to new highs was in a 3 wave pattern, which looks like a B wave. This means the correction is an expanded flat, and the C wave should be quite sharp. I’m targeting around $265 for the 4th wave decline. If we break above the recent high, we can extend the 3rd wave, but eventually, and sooner rather than later, the 4th wave will have to happen.
Chainlink (LINKUSD)
Though it may appear that we are getting a 5 wave drop from the high, this drop appears to be part of an expanded flat correction. If so, this should be the A wave, followed by a 3 wave bounce for b and then another 5 wave drop pointing toward the $12 range.
Below is the count that makes the most sense from the price action. Note how we have 3 waves down, then 3 waves up to new highs. This is most likely the A and B of the expanded flat. If this plays out as expected, look for a 3-5% buy in our target zone.
Micron (MU)
The move over $102 has forced me to rethink the potential counts in play. Since we are getting a gap over $102, then we should be heading to $154 in a larger 5th wave push. This breakout has to hold $102 or we could see a reversal. However, after that report, I find that to be unlikely.
Solana (SOLUSD)
Solana is in a 3rd wave. The 4th wave should take us back to the $137 – $85 range before turning back up for the 5th wave higher. If this drop from the high is a 5 wave move down, we will likely sell half of our gains on the bounce. Unfortunately, because we are dealing with such a large pattern, the critical support is below $85, for now. So, we will have to rely on the structure of the drop – 5 waves down will be an early warning sign.
Cloudflare (NET)
I still hold to NET being in a very complex B wave. The final C wave of this B wave is a 5 wave push higher, and the final move in this corrective bounce. Either we topped with a break below $90, or we can hold $90 and see one more push towards $145.
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.
Microsoft topped on February 13th, making a series of lower highs while the S&P 500 (SPX) continued higher. We now have Tesla, Apple, Google and Microsoft not participating in the current push higher, which is a big warning for the bulls. Not only were these stocks market leaders in 2023, but they account for ~18% of the total weighting within the S&P 500. This is a large weight around the broad market, and a divergence that should not be ignored.
Regarding MSFT, we have logged significant gains, moving it from a 8% position back to a 2% position. The valuations are at extremes, and the technical picture is concerning. Note below how we have two degrees of 5 wave patterns that started off the 2022 low. This is a mature pattern, and likely setting up for a pullback. Below $397 will be the first warning that a downtrend has started. Once we go below $365, the top will most likely be confirmed and we will set up downside targets to buy.
Nvidia (NVDA)
Nvidia started Friday up over 6% and ended the day down -5.5%. This is called a bearish engulfing candle, and can be visually seen in the below chart (the red arrow). This type of candle pattern tends to show up around trend reversals. What makes this one more notable is the fact that it happened on such heightened volume. In fact, this was the most trades shared in a day since the August, 2023 top, which started 2 month correction.
We have been patiently waiting for a prolonged reversal of this market leader. We believe that if it does not happen here, it should happen after we push towards the $1000-$1100 region on one more push higher. As long as we hold $784, the potential for another swing higher is possible. Below this level and we will start setting up downward targets to buy.
Bitcoin (BTCUSD)
We have been waiting for Bitcoin to go vertical, and it appears to have done so over the last few weeks. The vertical move tends to mark the halfway point of the uptrend, which puts our targets over the $100,000 region. However, we should see a pullback before continuing higher.
Note the weekly chart below. The Detrend Oscillator is in the same position as the 2021 peak. This oscillator loves the reverse at prior peaks and troughs. It’s at this position while the Composite Indicator is making a lower high. In other words, price is pushing higher with less momentum. These are warnings that a breather is likely to happen.
If we do pullback, we will be targeting the $57,000 region to add to our position. In order to continue higher, we must hold $40,000. Below this level and the uptrend we have been tracking will likely be over.
MSFT went above our $415 target briefly, before gaping down on February 13th. Based on valuations as well as a very mature 5 wave pattern completing on the technicals, we have further sold MSFT down in our portfolio. Below $385 is the first warning for the bulls, and below $370 will signal the bigger top is underway.
Nvidia (NVDA)
This is a stock we will likely hedge, and not reduce considering its leading position within the burgeoning AI trend. Unlike many stocks, NVDA looks like it has room for one more high. The uptrend is missing a 4th and 5th wave. This drop is likely the start of 4, and should pull back to the $660 – $615 range; however, it can drop as low as $590 and still maintain the potential to push higher in the coming weeks/months. Our upper targets are $820 – $864 for the 5th, as long as $590 holds.
Bitcoin (BTCUSD)
The $57,000 resistance will be the major line in the sand overhead. If we can cross it and hold, then our long-term targets will increase in probabilities. In the meantime, I still believe we are in correction, and should see a drop back into the $38,000 – $36,000 range. The larger uptrend remains intact as long as we stay over $25,100.
Advanced Signals Members receive in-depth technical analysis from our Portfolio Manager, Knox Ridley. Learn more here.
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.
Advanced Signals Members receive real-time trade alerts for our entries and in-depth technical analysis from our Portfolio Manager, Knox Ridley. Learn more here.here.
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.
