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Market Analysis

Market Update - 2/27/2017

A 2013-like bull market run remains in full force. This had been my view throughout 2016, most recently expounded in my September 2016 article titled Market Outlook - Reminiscence. With 2017 barely underway, the charts below reflect my current view of the U.S. stock market.

INDICES


Chart 1. The S&P 500 index ($SPX) is in the wave 5 phase of the Elliott Wave progression depicted in the chart. This would imply a major correction down the road, aiming to retest the 2016 lows. The target for the unfolding fifth wave is ~2,500.


Chart 2. The Nasdaq Composite index ($COMPQ) is in the wave 5 phase of the Elliott Wave progression depicted in the chart. This would imply a major correction down the road, aiming to retest the 2016 lows. The target for the unfolding fifth wave is ~6,100.


Chart 3. The Dow Jones Industrial Average ($INDU) is flirting with 20902, a preliminary target I had previously set for wave 5. This wave could easily extend further up under the proper conditions. The next most common target for wave 5 would be 21278. But let's acknowledge the fact that ever 1,00 points constitutes a major milestone. 


Chart 4. The Russell 2000 index ($RUT) is in the wave 5 phase of the Elliott Wave progression depicted in the chart. This would imply a major correction down the road, aiming to retest the 2016 lows. Having exceeded the preliminary wave 5 target of ~1380, the next most common Fibonacci extension for a typical fifth wave is 1484.


Chart 5. The Philly Semiconductor index ($SOX) will likely crack 1,000 in the coming weeks. The bull run that got underway following the 2016 correction is nothing short of exhilarating. Hence, to try and predict an upside objective and a subsequent turning point would be an exercise in futility. Rather, I'd wait for signs of changing conditions to make themselves evident before calling for an interim top. With that in mind, there's no denying the overall pattern is a massive cup formation in progress, and set to break out to unprecedented highs down the road.  


Chart 6. The Nasdaq Banking index ($BANK) has been on a tear, and in light of last year's bullish prediction, it has certainly not disappointed. As depicted in the chart, 3,997 is a milestone to be mindful of. Ultimately, the 4,867 objective of the Bearish Crab harmonic should be reached down the road.  Here again, there's no telling when conditions are likely to change. 


Chart 7. The Dow Jones Transportation Index ($TRAN) is a stone's throw away from the upside objective indicated by the black arrow. Further above is the point D of the bearish Crab pattern. Again, target setting is a futile exercise. Hence, the uptrend will remain in full force until signs of changing conditions (from risk-on to risk off) begin  to manifest themselves.

RELATIVE STRENGTH


Chart 8. $NDX/$SPX ratio. Relative to the S&P 500 ($SPX), the tech-heavy Nasdaq 100 ($NDX) performing well, indicating risk-on appetite is alive and well. 


Chart 9. $SOX/$SPX ratio. Relative to the S&P 500 ($SPX), the Philly Semiconductor Index ($SOX) is performing exceptionally well, having recently broken through 2007/2011/2015 hurdle. The $SOX is expected to continue to outperform in coming years. 


Chart 10. $XLP/$SPY ratio. Relative to the $SPY (the ETF that tracks the $SPX), the $XLP (Staples sector) is sorely lagging. With no flight-to-safety evidence at hand, it's clear investors are still favoring risky assets in support of a continued uptrend and further highs in the stock market. 


Chart 11. $XLU/$SPY ratio. What is true of the $XLP is also true of the $XLU (Utilities sector). Until funds begin to pour into safe assets, the path of least resistance for the stock market is up. 

Trade Smart,

Peter Ghostine (@peterghostine)


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