Big Picture
Back in March, we laid out an alternative count that the market could take. In this report, we stated
“Alternative (Red) – We have just completed the 2nd leg within a larger B wave (bear market rally). This will lead to the final 3rd leg of the bear market rally, which is targeting +4400 SPX.”
This count was based on the fact that the market would shrug off the bank failures and push higher into the 4280 – 4420 region before topping out. The market has now powered into this target region, and even punched through the upper boundary of this target zone, momentarily. This recent price action has forced me to alter my current alternative count, which we are starting to risk manage around., which I will discuss below in detail. Here are the most probable paths the market will likely take based on current price action:
- Option 1 is noted in Blue below and is my primary count – Corrective Pattern: The biggest tell that this pattern is playing out will be a clear 5 wave drop from current levels that breaks below 4225 SPX.
- Option 2 is noted in Red below and is my alternative count – We are at the halfway point on a path that will lead to new highs. The biggest tell that this pattern is playing out will be a 3 wave drop that holds 4225, and turns back up to make a fresh high. If confirmed, our targets will be around 5000 SPX.
Breadth is weak and there are other factors that make the Red scenario less probable, for now. On the other hand, price action has moved above our upper target range. As a technical analyst, I have to respect price action.
Major Inflection Point
What will help us determine what count is playing out can be best seen on a smaller time scale.
The brief answer is what happens at 4225 is key. If we see a 5 wave drop that breaks below 4225 SPX, then the odds will start to greatly favor the blue count, and a top being in place. If we see a 3 wave drop that holds above 4225, and then turns back up sharply, then the odds will favor the alternative red count.
I/O Fund Portfolio
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Advanced Micro Device (AMD)
AMD’s uptrend off of the 2022 low is an overlapping pattern that looks corrective. Our red count has this pattern as a large degree leading diagonal as a 1st wave with a large 2nd wave that will likely line up the credit cycle downturn. We’re also moving our upper target to fall in line with what a blow-off would look like. This correction in AMD, so far, looks to be corrective, which supports the red count. AMD has to hold above $88 for a continuation higher. As long as this holds on any weakness, a push to new highs is expected.
Nvidia (NVDA)
Our blow-off target is in the mid-$550s to low $600s. As long as NVDA stays above $340, this is our expectation. Below $340, and we will start identifying lower levels to target. Also, this little dip, so far, is just not enough to be all of our 4th wave. It should last longer and deeper, which we are using to identify a good buy spot.
Netflix (NFLX)
NFLX bottomed many months before the rest of the market in 2022, and has continued higher in what appears to be a very large leading diagonal. The good news is that this move would only be the 1st wave in a very large 5 wave uptrend. The bad news is that we need a large 2nd wave retrace next. We are waiting for this larger 2nd wave to manifest before adding back to our position. Regarding current price levels, as long as any weakness holds $370, then we expect NFLX to make another swing higher into the $450-$500 region. Below $370 and the larger 2nd wave pullback is underway.
