For reference to terminology used, please look at technical analysis under our resources section here. Regarding the charts below, the vertical tan shades represent time factors. These are inflection points where we have high odds of something significant happening. More times than not, (3/4 of the time), they mark a turning point in the trend. So, what matters is the direction we are trending into these periods. Regarding the vertical lines, black lines represent strong support/resistance, while dark red lines mark very strong support/resistance.here. Regarding the charts below, the vertical tan shades represent time factors. These are inflection points where we have high odds of something significant happening. More times than not, (3/4 of the time), they mark a turning point in the trend. So, what matters is the direction we are trending into these periods. Regarding the vertical lines, black lines represent strong support/resistance, while dark red lines mark very strong support/resistance.
Elliott Wave count are meant to provide context. 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
Broad Market
Nothing has changed from last week. We believe the bounce from the October low is a bear market rally, and that we are at the tail end of this rally. The question remains whether the market has topped or has one more push to new highs before petering out.
I laid out the case for this push to new highs last week, which could take us back towards the 4300 SPX level, and last through May/June. As of now, we do not have confirmation of this scenario playing out.
Note in the above chart the Relative Strength Index (RSI) below the weekly price chart. This is a momentum indicator that produces very important patterns on longer time horizons. You can see how the post-COVID bull market held the black trendline as support. It then broke this support, which has been its resistance in the following bear market. As of now, we are not seeing internal momentum that is suggesting a new bull market is developing. This is a further warning to the bulls, as the technical picture is not as healthy as some may believe.
Potential Paths
My primary count is in blue. This count has the top in and is only waiting for a trigger to push us below the confirmation level of 3838 SPX. Below this level and the risk will be very high.
Last week I, introduced the green count. This is a variation of the bullish red count I’ve been tracking for many weeks. I’m favoring this one as an alternative because it would have the market top into our major cycle cluster from April 11-28.
Regarding the green count, this would have us in wave 3 of 3 of the final C-wave in this bear market rally. As long as price stays above 4044 SPX, and then pushes above last week’s high, this will remain my alternative count.
The red count has been altered because of the strength of the most recent swing higher. It’s not typical that the 5th wave of a leading diagonal is so strong, meaning that it would likely have to be the 3rd wave in a much bigger leading diagonal pattern. For this reason, I’m not considering this as a possibility as long as price stays above 3970 SPX. Below here, and it will become my alternative count again.
April 11-28 Time Factor
We do extensive cycle work to help us know when to expect a market inflection point. As strange as this may sound to many, of all the technical tools I use, it is the most reliable. Since I first introduced these Gann Time Factors, they’ve had a near perfect track record in identifying these inflection points.
Regarding these time factors, they are simply repetitive cycles that a stock/market reacts too. There are two things that I look for that helps me determine if a time factor is likely to be a big inflection point. For one, I’m looking for the same period being shown across many markets/stocks. The second thing is if we have multiple cycles coming together at the same time to make a cluster.
In the S&P 500 chart below, each symbol represents a time factor/cycle that has an effect on the S&P 500. Note how we have a large cluster coming together next week. This, more times than not, tends to mark a big inflection point worth monitoring.
Regarding other markets/key stocks that I track, here is where they are showing a time factor in the coming weeks:
NASDAQ-100: 26th – 1st
Russell 2000: 18th – 24th
ARKK: 12th – 18th
XLF: 20th – 28th
BTCUSD: 18th – 21st
TSLA: 11th – 28th
NFLX: 18th – 26th
AAPL: 11th – 14th
GOOGL – 17th – 21st
AMZN: 13th – 21st
META: 11th – 21st
NVDA: 14th – 21st
FDX: 6th-17th
So, we have a large cycle cluster, coupled with several important markets and key stocks pointing towards this same period. So, we should see a notable inflection point coming up.
Typically, what matters the most with these time factors is how we are trending into these periods. About 75% of the time, we see a reversal of the trend moving into the time factor. The other 25% of the time, we see a 3rd wave breakout. Regardless, I believe a lot more clarity on what count is leading will manifest in the coming weeks.
Supporting Markets
The Russell 2000 (RUT)
Small caps have been exceptionally weak, mostly because this is where most regional banks reside. The structure of RUT appears to be shaping up as a developing 5 wave pattern pointing down. If this is accurate, we should see one more drop into this week/next week, followed by a reversal upwards. This would suggest that this April time factor would be a significant low, supporting the SPX red count, or potentially an extended green count.
However, a breakdown below that yellow region on my RUT chart will signal that the top is in, and support the blue count in SPX.
Dow Jones (DJI)DJI)
The Dow also supports the red/extended green count. The drop from the December high has been very messy and overlapping, which favors a B wave with a C wave to new highs coming. In order to confirm this, we need two things: 1) the developing pattern off of the recent low needs to become a 5 wave pattern. So far, it’s only 4 waves. 2) we must break above the December top.
If we see a 5th wave develop, followed by a 3 wave retrace into our April time factor, then we might start shifting towards the limited bull case – red/green on SPX.
FAANGs
The FAANGs, on the other hand, appear to suggest something else entirely. Microsoft appears to have met our target at $291. It could have a spill over to the $298/$300 region, but that would be it before we see a bigger pullback take hold.
AAPL and GOOGL suggest that they have one more swing high in them worth monitoring. AAPL has hit our first range of targets and turned down. The structure of AAPL’s uptrend suggests that it could be targeting the $169-$170 region. This would likely complete a very full, upward pattern, which would lead to a bigger decline.
GOOGL has broken out to new highs, but looks to have limited upside potential from here. The geometry looks to be targeting $114-$116 region before we see a larger reversal.
META has reached our target at $216, which had us initiate a short position. According to my count, this should be it for META; however, the alternative count would have us targeting ~$243 before the bigger pullback takes hold.
At best, the FAANGs appear to be topping out. So, the question remains – are small caps and financials leading us lower or is big Tech leading us higher? As stated last week, the structure of the coming pullback is what will determine how bearish/bullish we get.
Since the bear counts have to be in the form of a large C wave pointing down, it will be in the form of a 5 wave pattern. if we see 5 wave drops across the board, then we have an early confirmation to get defensive. On the other hand, if these drops come in the form of 3 wave drops into our April Time Factor, no matter how bearish things look, the market will likely be setting up for a larger push higher – SPX red/green count.
Financials
Let’s not forget about the most important sector in the market – financials. Due to the strength in tech, most have shrugged off what’s going on here. If financials didn’t look so bad, I’d be more inclined to shift into the red/green counts for SPX.
XLF has given us the minimum waves to be a 5 wave drop from the February high; however, my count has us in a 4th wave with one more drop to come. This will line up with the green/red count in SPX and a low in the Russell 2000. As XLF pushes higher in a larger 2nd wave, we can see other markets/stocks play catch-up and top out later in the year as we get one more swing high.
However, it’s worth being on alert. We do have a 5 wave pattern down and a very small 3 wave retrace, which could be a very small 2nd wave. If we see a gap down on heavy volume in financials, it will confirm that the blue count is farther along than originally thought.
I continue to believe XLF is one of the most important markets to watch. This is not a collection of regional banks, but the largest financial institutions in the world. If we do get another drop, the 5 wave pattern will be very filled out, and dropping from what appears to be a bear pennant B wave. If this happens, any uptrend that follows will be on borrowed time.
Bank of America (BAK), being one of the larger banks in America, has one of the more concerning charts. It looks like waves 1 and 2 are in, and we are on the verge of a 3rd wave break down. As long as BAC stays below $31, this setup is in place. If we break that trendline that has held up BAC since 2012, expect the markets to follow.
Macro
The Fed Funds Futures now has odds of a 25 bps rate hike around 71% during the next FOMC meeting in May. This has risen from around 50% just prior to the recent jobs report last Friday.
The jobs report was perceived as strong, but under the hood, the results were actually mixed. What was strong was that private sector labor income came in at 9.1% on a 3 month annualized basis. This is the highest increase since April of 2022. Furthermore, civilian employment jobs increase by 577,000, with a 480,000 increase in the labor force. This pushed up the participation rate in the economy to just north of 62%, which was the highest we’ve seen since March of 2020, just after the pandemic started.
However, as we’ve stated time and time again, the most important metric is not the increase in jobs, but the number of hours worked. With all the increase in jobs, the number of hours worked actually went down on a MoM basis of 0.1%. This tells us that businesses were hiring, but they have less work that needs to be done, which is not good.
Employment is the last metric to go in a recession, and we are seeing the metrics that matter continue to trend lower. Regardless, the FED’s aggressive rate hikes have yet to address a rather resilient labor market, meaning that they will continue to press rates, further intensifying the interest rate risk we are seeing with banks.
What is the bond market telling us about the recent data? The 3-month yield just pushed to new highs, while the 6-month yield is very close to making a new high. In other words, the bond market is confirming the FED will push rates higher in May.
However, look at the 2-year yield (red below). It’s still suggesting a top in rates, and continues to suggest a reversal/pivot quickly after the FED raises in May.
The shorter the duration, the more of an effect the yield has on FED policy. Once we see the 6-month and 3-month start to crater like the 2-year, a FED pivot, and likely reversal will be close.
I do not see a pivot as a positive occurrence, though most will. In fact, we could see the equity market rally hard on this news, confirming our red count in SPX. We’ve been trained over the last 14 years to only focus on liquidity. With inflation low, the FED has been able to support equities with multiple liquidity cycles, leading to short, but sometimes deep corrections.
With inflation at a 40-year high, they embarked on the most aggressive rate hike campaign since the 1970s. This was accompanied with global central banks following along.
What investors are forgetting about is the effect rate hikes have on the economy, and the lag time it takes for hikes to be felt in the economy. Some estimates claim that it can take up to a year before the full effect of a hike is felt; however, the consensus is that it’s anywhere between 6-9 months. This would imply that we are just starting to feel the effects of the current rate hiking cycle.
Historically, the FED pivots around market tops, starting a new liquidity cycle. However, the combined effects of the multi-month to multi-year rate hike campaign triggers an unavoidable credit cycle, which appears to be unavoidable in the coming months.
In the chart below, I compare the Fed Funds Rate (BLUE) to the S&P 500. The below gray bars show the lending standards for banks. As banks get more concerned about the economy, the less loans they provide, causing a cascade of defaults.
Note how the FED starts a new liquidity cycle usually around the top in equity markets. They start lowering rates, knowing that it will also take time for these lower rates to filter into the economy. However, once rates go up too high, the damage is done, and the economy as well as the markets must go through a credit cycle before a new expansion period can start. What’s concerning in the current cycle is that the FED is still hiking rates and engaging in QT, meaning that this credit cycle could take longer to cycle through than most think.
In conclusion, price action, liquidity cycle and credit cycle do not support a renewed bull market developing. If we start seeing evidence to the contrary, we will happily pivot. We will continue to lean into our hedge signal, while holding heightened levels of cash until more clarity is presented in the market’s direction.
I/O Fund Positions
We have positioned some of our portfolio for the potential of the SPX green/red counts playing out. We currently hold just north of 20% cash, with a ~4% short position in META.
Hedge
Our hedge has provided us three intra-day sell signals over the last couple of weeks. However, we need to close the day on a sell signal for us to act. This means that buyers have stepped in towards the afternoon session on weak trading days. We are close to triggering a sell signal, and another down day that closes on the low will likely do it.
Netflix (NFLX)NFLX)
Netflix, by default, has become our largest position. The structure looks like it needs one more push into the $379-$410 region to complete the 1-year long, leading diagonal pattern. If this happens, we will cut our position significantly. In fact, we may front run this move if we push a little higher.
Nvidia (NVDA)NVDA)
There are simply no significant sellers in NVDA, as it is now +158% from our October 13th tranche at $108. We still only have 3 waves up off the low, and expect some event to trigger a sell off. If we see 5 waves down on this drop, it’s a big warning, while 3 waves down will set up the next great buying opportunity, sooner rather than later.
Advanced Micro Devices (AMD)AMD)
AMD is also topping out. The same analysis that applies to NVDA (and many stocks), applies here – 5 waves down is not good; 3 waves down will set up a great buying opportunity.
Enphase (ENPH)ENPH)
We don’t want to see the $187-$180 region broken. Below there and the bullish setup in ENPH could be in jeopardy.
It continues to act like energy commodities, and like the below energy commodities I track, it appears to be bottoming/setting up for a breakout.
Crude Oil
Crude continues to consolidate at the recent high in what looks like a 4th wave. Any push above $81.90 will confirm a 5th wave, as well as a major low being put in.
Gasoline
Gas is close to breaking out above $2.8. The final test will be $2.95. If it clears these hurdles, I’ll be looking for new highs in gasoline, as strange as that may sound, considering the macro environment.
Bitcoin (BTCUSD)
Bitcoin is moving in an inverse correlation to the banks, which is very interesting. We will continue to follow the WealthUmbrella signal to help us navigate this move. Technically, as long as BTCUSD stays above $19,550 on any weakness, we are still looking up.
Ethereum (ETHUSD)
ETHUSD has a more bullish posture than Bitcoin. However, the $2100-$2300 level will be an important pivot for ETHUSD to clear. We could see a pop into that region, followed by a failure. If we can clear this region, the upwards target on ETHUSD is worth buying into.
Microsoft (MSFT)MSFT)
Please refer to the Supporting Markets analysis above.
Tesla (TSLA)TSLA)
TSLA appears to be bottoming out, which favors the red count. If we get a full 5 waves up off the low, regardless of what unfolds in the broader market, a strong case can be made for a major low being put in.
Aehr Test Systems (AEHR)AEHR)
I believe the Gann chart below is the most telling. Note the buyers stepped in at the double 1×1 line in red below. If this line breaks, we will likely reduce AEHR in our portfolio. Also, note the cycle cluster coming up between April 18th – 25th. If we are trending up into this region, that will also be a signal to reduce our exposure to AEHR.
Taiwan SemiConductor (TSM)TSM)
The recent escalation between China and Taiwan is concerning. This will hit TSM especially hard, but it will have effects on most semis, including AAPL. Regardless, this is an amazing company, and we look forward to building our position into strength or weakness.
Chainlink (LINK)LINK)
Meta Platforms (META)META)
Please refer to the Supporting Markets analysis above.