We recently published a free article that outlines the major risks this market currently faces. We also provided broad market analysis on the two most likely paths this market might take. For those interested, we encourage you to read it herehere.
Regarding the broad market, in our last report, we stated that
“The line in the sand is 5400… If the market decides to break below 5400 in direct fashion without a bounce, I think it is reasonable to expect a more direct drop to 5200 – 4800.”The line in the sand is 5400… If the market decides to break below 5400 in direct fashion without a bounce, I think it is reasonable to expect a more direct drop to 5200 – 4800.”
We found a low, so far, in the 4800 region, as the market is now staging a bounce. With sentiment readings at historic lows, if the market is going to push lower in a bigger way, it will need to reset sentiment and bring investors back into the markets. This further supports a bounce, which we believe has already started. There are two basic paths I’m tracking over the short-term time frame:
- Blue – We have started the expected bounce, which should take us to at least 5635 and potentially to the 6050 region. I think we will see some weakness this week that should hold over 4980 SPX. If this level holds, we should see the bounce continue to our targets.
Once we get to the target region overhead, risk will be elevated. How we correct from there will be crucial, which will determine if we are heading below 4000 SPX, or if we are setting up for a move to new all-time highs.
- Red – Any further weakness breaks below 4980 SPX and continues lower. In this instance, I will be targeting the 4700 – 4546 to complete this leg of the drop. This should be the last swing lower that will set the stage for a multi-week bounce back into our overhead target zone.
As stated in the last report, we reserve regular broad market updates for our Advanced Members. However, during times of volatility, which could lead to a meaningful inflection point for investors, we want all our members to have the proper context so that they can risk manage their positions.
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Nvidia (NVDA)
The bounce in NVDA looks a lot like the S&P 500 overhead – weakness into this week that makes a higher low, then a more direct push into the $116 – $127 region. The drop looks incomplete, and there are two scenarios I’m tracking on what could potentially happen after this bounce completes:
- Blue – This bounce will fail to make a new high, and the final drop that follows will complete a very long correction in the $70 region. Once the coming bounce completes, the drop that follows needs to be a messy/3 wave move for confirmation. In other words, we do not want to see a direct drop with bounces.
- Red – This scenario should look identical to the blue scenario – a bounce into the $116 – $127 region. However, once this bounce completes, we’ll see a more direct drop, signaling that we are setting up for a move to the $60 region.
Taiwan Semiconductor (TSM)
TSM has a similar setup as NVDA and the S&P 500 above, and is setting up for a big bounce, which has either already started or will start after one more slight low. We expect TSM to take us back to the $187 – $215 region on this bounce. Like with all the equity positions we track, once we get into the target zone, risk will be elevated.
We will not know if the coming bounce will be a lower high in an even larger correction, or a pause on our way to new highs. Based on the mounting risks, we may be looking to reduce risk in TSM and many other positions on this bounce.
Bitcoin (BTCUSD)
Bitcoin is moving in a different path than the equity markets. Bitcoin now has all waves in place to suggest this correction is over. However, I do believe that the pattern best fits with one more slight low to the $74,000 – $69,000 region. If this drop lower happens, it should be on less momentum and less volume than prior drops. This will signal the final 5th wave lower is in place, which should then complete the larger correction.
If instead, we can see price break over $88,500, then the odds will favor the correction being over. It will be a series of steps, but the larger swing, which we have been anticipating for many months, should take us into the $120,000, at minimum. If this plays out, we will greatly reduce our Bitcoin exposure and continue to log meaningful gains.
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.
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