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Weekly Market Analysis - 24

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The U.S. stock market indices remain on an upward trajectory. The Nasdaq, which lost 80 percent of its value in a little over two years on the heels of the 2000 blow-off top, is back at its 15-year old record high. This time, however, it's not "faux technology" companies conspiring to fuel a bubble, but rather real companies exploiting real technologies to generate real returns.  

Risk Environment


Chart 1. Consumer Discretionary (XLY) vs. Consumer Staples (XLP). Discretionaries have been steadily gaining ground over Staples, a reflection of
a healthy consumer not afraid to open his wallet. (The chart depicts the XLY/XLP ratio).


Chart 2. The tech-heavy Nasdaq 100 (QQQ) vs. the S&P 500 (SPY).  Risk appetite is alive and well, as indicated by the QQQ/SPY ratio. The QQQ leading
the SPY is one sign of a risk-taking investor looking to put money to work, as opposed to parking it in safer assets.


Chart 3. Relative to the SPY (S&P 500), the XLU (Utilities sector) has embarked on a trend of underperformance since late January/early February.
This clearly is an indication of an investment strategy seeking to achieve higher returns compared to what the high-yielding utilities have to offer. 
Like Treasury bonds, Utilities are generally a safe haven.


Chart 4. Relative to large caps, small caps began to once again outperform in Q4 2014 on the heels of a protracted period of underperformance.
That being said, the ratio of S&P small to large caps depicted in this chart is far from recapturing its late 2013/early 2014 highs.   

Indices


Chart 5. The Dow Jones Industrial Average (INDU) is closing in on the top of the green parallel tend channel, as well as the Fibonacci 1.272 extension of the
blue AB = CD pattern.


Chart 6. The S&P 500 (SPX) pulled back to test the Butterfly PRZ back in mid October 2014. It then turned around to resume its ascent towards the
next Fibonacci cluster depicted on the chart. Namely, this alignment consists of the 1.618 XA (2138) and the 3.618 BC (2145).


Chart 7. The Nasdaq Composite (COMPQ) is approaching its 15-year old record high. Relative to green wave 1, green wave 3 will likely terminate in
the vicinity of the Fibonacci 2.236 extension. Green wave 4 should then embark on a protracted profit-taking consolidation period that should
set the stage for green wave 5 into the 7000+ area. 
 


Chart 8. By the time it reaches its all-time high from 15 years ago, the Nasdaq 100 (NDX) will have traced out waves 1 and 3 of a 12-year old bull run.  
Similarly to the COMPQ, the tech-heavy NDX  should succumb to a protracted profit-taking period (wave 4) before resuming its ascent towards the
7000+ area (wave 5).


Chart 9. The Russell 2000 (RUT) is making new highs and is well on its way to the ~1270 milestone (the 1.272 extension of the yellow AB = CD 
pattern). It remains above the 2000/2007 line, which, along with the 1998/2002/2009 line, form a right-angled and ascending broadening pattern
whose measured move is ~1370. 


Chart 10. On the daily time frame, the Nasdaq 100 sports an inverted Head and Shoulders pattern with a measured objective is ~4500. But this alone
does not necessarily imply an imminent reversal, as the indices are likely to continue to forge ahead, conditions permitting. However, do expect
potential profit taking this week on the heels of the non-farm payroll report.    


Chart 11. On the daily time frame, the Russell 2000 sports an inverted Head and Shoulders and Cup-and-Handle patterns with a measured objectives
of 1250 to 1278, respectively. This is consistent with the 1270 milestone depicted in chart 9.

Philly Semiconductor Index


Chart 12. The Philly Semiconductor Index (SOX) continues to make new recovery highs relative to its all-time high from 15 years ago. Unlike 2011
during which the SOX diverted from the major indices ahead of what we now affectionately refer to as the Summer 2011 swoon, this forward-looking
indicator is currently hinting there's a lot more fire left in this bull market's belly.  


Chart 13. Relative to the S&P 500, the Philly Semiconductor Index (SOX) is leading the charge and has done so since tracing out the blue inverted
Head and Shoulders pattern back in 2012/2013. Now evident on the chart is a broad base (or cup) that should catapult the ratio index back towards
the 2011 high and beyond. 

Nasdaq Banking Index


Chart 14. The Nasdaq Banking Index (BANK) is confirming the rally, as it continues to rally alongside the major indices. Relatively speaking, it has yet
to recapture the highs achieved last year and even earlier this year, given that the major indices are setting one record high after another. Though the
banks are not leading the current bull charge, they do continue to trade generally well.  

Volatility


Chart 15. Early in the year, the VXX retraced exactly 61.8 percent of the preceding AB leg. If an AB = CD pattern is on hand, the VXX should be
the subject of further erosion. The D point is in the vicinity of 18/share.

 
Treasury Bonds


Chart 16.  The TLT rallied throughout 2014, only to top in early 2015 upon contacting the 2008/2012 line. TLT is currently trading below the rim
of the recent Cup-and-Handle pattern. Further erosion is to be expected. 

AAPL


Chart 17. AAPL's red wave 5 did attain the 78.6% extension forecasted several months ago. At least for now, the yellow AB = CD pattern appears to
have  run out of steam just below the 1.272 extension (yellow). All of this "topping action" is unfolding in the vicinity of the 1.618 extension (blue) of
the 2012/2013 down leg. That being said, the wave structure continues to suggest residual upside that should carry red wave 5 beyond its normal
"text book" target. If so, look for the yellow AB = CD pattern to extend further up towards the 1.618 mark. If so, this would be consistent with chart
18 below.


Chart 18. From September 2012 through late 2014, AAPL traced out a massive Cup and Handle pattern having an upside target of ~146. I suspect
AAPL will build up enough steam to serve up the final installment of its current bull market by the time the company releases the much-anticipated
iWatch.   


Chart 19. The monthly time frame depicted here does indeed support the relatively short-term view calling for the stock price to top near ~146. This
should then be followed by a multi-month profit taking phase not unlike that of September 2012/April 2013. Wave 5 should then take hold, and its
target will be forecasted at a later time.

Trade smart,

Peter



If you found my analysis thorough and useful, consider subscribing to the TradeWinds service on 61point8.com for an ongoing analysis of the U.S. market indices and a steady flow of trade setups. As always, you will continue to enjoy my free contributions on Twitter and StockTwits by following @PeterGhostine. My StockTwits page is http://stocktwits.com/PeterGhostine.



 

 

 

 

 

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