Nvidia (NVDA)
I spent extra time on NVDA, considering it is our largest position. The smaller time frame seems to be quite clear – we are trending up into the $1050 – $1315 target zone that we identified in our April report. The developing pattern is 5 waves, which means that we now have a fully formed 5 wave pattern into the target zone. This should set us up for some type of a reversal.
While a pullback from the current swing high appears to be reasonable, the question is what degree of correction will this become? When we zoom out to answer this question NVDA’s chart provides two potential answers.
When charting, there are two scales to measure price – linear scale and logarithmic scale. In linear scale, the Y axis has the same division in price from top to bottom. So, if the division is every $100, then a move from $100 – $200 is a 100% move. However, a move from $1000 – $1100 is only a 10% move. This gives the appearance of small moves at the based on the trend and dramatic moves the higher we go.
The other option is logarithmic scale for the Y axis. The measurements here are divided by equal % gains, not equal price measurements. This gives a more balanced account of historic trends up into the current one.
There are no rules on what scale to use. Some analysts prefer one over the other, while I tend to use both. I have found that some stocks tend to work better in one scale vs. the other. With Nvidia, each scale is telling us to wait to buy. Where they differ is the size of the drop that is likely building.
When we put NVDA in linear scale, it appears that we are completing a large degree 3rd wave, which could keep extending. The coming 4th wave would retrace the prior swing, before bottoming and starting a new large degree 5th wave higher. The targets for this 3rd wave are in the $1200 – $1300 range. A breakdown below $1035 will signal that we are in this correction, which we would use to setup buy targets.
When we put NVDA in logarithmic scale, it appears that we have a fully formed 5 wave pattern, where the 5th wave extended. The targets overhead are roughly the same and the break down price point remains $1035. However, this count suggests that we would see a deeper pullback than the count in linear scale.
Interestingly, the fundamentals simply do not line up with either of the counts, especially the one suggesting a deeper pullback is coming. The valuations are not exorbitant, as price would suggest. With each report, forward sales have continued to accelerate higher, and in some instance cases more than price increased.
A move to those levels would require deep revisions, or an unforeseen macro catalyst. This has been a fundamental story, as I have been forced to re-write this chart several times throughout the uptrend. So, we do not plan to take drastic measures now that NVDA has hit our technical targets.
Since 2023, we have seen three greater than 20% drawdowns in NVDA. Our plan will be to buy on these ~20% dips, and if we see an even deeper one, as outlined by these two counts, we will buy more. Until the story shifts and the fundamentals get reversed, we see no reason to not buy the dip on NVDA as it remains our top position, and will likely hold that spot into the foreseeable future.
Bitcoin (BTCUSD)
Bitcoin hit our $57,000 target and has bounced back to retest the highs. I still think we are going higher; the question is if it will be directly from here or after we make one more drop into the high $40,000s first? If we break out to new ATHs, then we should see the $83,000 level next.
There is an important cycle cluster coming up in late June. How we are trending into these cycles is what is important. If we are trending higher into ATHs, then we will likely see some type of a reversal. If we are trending lower, then we will likely see some type of low.
Broadcom (AVGO)
AVGO is a new addition and one that we plan to continue to buy on further weakness. The long-term trend appears to be quite bullish; however, we will need to contend with some volatility along the way. If we zoom in on the current uptrend that we are in, we are either in the final swing lower in the 4th wave correction, or still in the larger 3rd wave higher.
If we see a breakdown below $1305, we will be in the 4th wave and target the $1100 region for bigger buys. If we are still in the 3rd wave, then we should see a breakout to new ATHs (above $1450), followed by one more swing higher to complete the 3rd wave. This would mean that the larger 4th wave pullback would happen later into the year.
Broad Market Technical 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.
We continue to track the secular bull market that started in March of 2009. Instead of 3 counts, as discussed in the April report, we are now only tracking 2 counts.
- Red – The secular bull market that started in March of 2009, completed its final 5th wave in early April of 2024. We are now in the first corrective pattern of this new secular bear market. We should trend side-ways to down until early 2025, which would then see the larger drop.
- Green – This count relies on an extended 3rd wave that pushed into the 2022 top. The 2022 bear market was the 4th wave, and we are in the final moves of wave 3 within a large 5 wave pattern. We should see a break above 5465, which would signal that we can see the bull market extend into 2025.
These two counts differ on where the large degree 5th wave in the secular bull market started. the red count has this 5th wave starting on the COVID low. This would make the 2022 bear market a 4th wave within this larger 5 wave structure.
What’s important to recognize in this count is the structure of the final 5th wave within this larger 5 wave pattern, which started in October of 2022. It is a common pattern for 5th waves, called an ending diagonal pattern. I discussed this pattern in great detail in the February Report. In short, it is a choppy, 5 wave pattern that has large swings in both directions, some overlap between each wave, and tends to operate within a defined trend channel.
This pattern best completed in early April. This would then put the current push to new all-time-highs as an extended bounce within a larger correction, and should give way to a sharp drop once completed.
The green count best fits as a much larger ending diagonal. While the red count has the final 5th wave of the secular bull market starting off the COVID low, the green count has the final 5th wave starting on the October 2022 low. While the pattern is the same, the green count has it playing out on a larger scale.
This would have us still in the 3rd wave of this larger ending diagonal, which would need to tag the 5750 range.
If we zoom into the ending diagonal that is currently playing out, we can get more context on the levels that we need to monitor for confirmation of a future direction in the market.
If we can see a push above 5465 in SPX then it will confirm that the green count, or some variation, is likely playing out. This means that we will be targeting the +5700 region more directly, which will be followed by a large correction into year-end. On the other hand, a break down below 5255 in SPX will confirm this the red count is in play. This means that the early April high was the top for the secular bull market that has been playing out since 2009.
Pro premium members receive deep-dive research on all the stocks in the portfolio and quarterly earnings kickoff webinars. In addition, the Advanced Market Signals Members receive regular technical and broad market analysis and weekly webinars from our Portfolio Manager, Knox Ridley. We closed Super Micro in early May for an average gain of 275% across all entries and exits. Also, we booked sizable gains in two cybersecurity stocks in April. Learn more here.We closed Super Micro in early May for an average gain of 275% across all entries and exits. Also, we booked sizable gains in two cybersecurity stocks in April. Learn more here.
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