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Market Analysis

Market Update - 3/24/2017

The seven-year bull market run (5-wave structure) that emanated from the wreckage of the 2010 Flash Crash is now in its very final stage, and it should soon usher in a bear market aiming to retest the 2015/2016 lows. But this bear market should in turn prove to be a lucrative buying opportunity ahead of the last phase of the larger-degree bull market that began exactly eight years ago in march 2009.  

The charts below reflect my current view of the U.S. stock market.

MAJOR INDICES


Chart 1. $QQQ is the ETF that best tracks the Nasdaq 100 ($NDX). As shown in the chart, wave 5 is in its final stage, and thus it should bring wave 3 to an end, ushering in the start of wave 4.


Chart 2. S&P 500 ($SPX) - Wave 5 is the final installment in the 7-year long bull market run that got underway on the heels of the 2010 Flash Crash. A retest of the 2015/2016 lows should prove to be one of the most lucrative buying opportunities since March 2009, April 2010, August 2011, November 2012, August 2015, and February 2016.


Chart 3. Nasdaq Composite ($COMPQ) - A massive Cup and Handle, implying years of residual bull market action in the coming. But hardly anything goes up in a straight line. If this Elliott Wave (EW) interpretation holds water (as it has time and again since 2013), wave 5 should bring wave 3 to an end, ushering in a severe bear market phase aiming to retest the 2015 lows.  The subsequent wave 5 should then set its sights on the massive Bearish Crab harmonic pattern's PRZ (north of 7,000). (Note: TD Sequential Sell 9-13-9 on this monthly chart).


Chart 4. $INDU (Dow Jones Industrial Average) - This chart pattern, which was first published back in early 2013, has finally fulfilled its objective. Yet another indication of an aging bull market in dire need of a meaningful correction!!!


Chart 5. $RUT (Russell 2000) - This chart pattern is fairly identical to that of the $INDU shown in chart 4. Again, an aging bull market yearning for a counter reaction. (Note: TD Sequential Sell 9-13-9 on this monthly chart).


Chart 6. $TRAN (Dow Jones Transportation Average) - We predicted this incredible bull run in the transports back in summer 2016 when this index first 'showed its hand'. The inverse Head and Shoulders continuation pattern certainly didn't disappoint. March's engulfing red candle could mean only one thing: institutions have begun the process of systematically unwinding their long positions. Subsequent rallies should prove to be selling/hedging opportunities ahead of what's likely to follow: a severe correction.  


Chart 7. $BANK (Nasdaq Banking Index) - Did the banks disappoint? Hardly. While they're still at historical lows, gradually rising interest rates favor 'bank' stocks, and this chart telegraphed it almost a year ago. From a chart pattern perspective, The Alternate Bat harmonic PRZ (3.618 BC) was hit right on the nose simultaneously with the top of the yellow channel (Andrews Pitchfork). That being said, I still expect the Crab harmonic PRZ (1.618 XA) to eventually be reached down the road. (Note: TD Sequential Sell 9-13-9 on this monthly chart).


Chart 8. $SOX (Philly Semiconductor Index) - I've been touting the semis since 2013. Needless to say, this index, which has served as well as a guiding light over the years, has practically doubled since the 2015/2016 double bottom. Despite the all-encompassing aging bull market, I believe the semis will continue to offer one of the most lucrative opportunities across all sectors. (Note: TD Sequential Sell 9-13-9 on this monthly chart).

SECTORS


Chart 9. The major S&P sectors convey a stealthy and gradual risk-off process. All sectors are succumbing to profit taking except the defensive Consumer Staples and Utilities sectors.


Chart 10. $XLP (Consumer Staples) - The daily chart looks very bullish and portends further bullish action ahead. The chart depicts a potential Cup and Handle pattern having an inverse Head and Shoulders at its base.  


Chart 11. $XLU (Utilities) - Now unlike Consumer Staples, the Utilities are also 'oozing' bullishness, promising further upside ahead. 

RELATIVE STRENGTH


Chart 12. $XLU / $SPY - The Utilities ($XLU) have clearly bottomed relative to the S&P 500 ($SPY), as indicated by the double-bottom pattern. Having already embarked on an outperformance journey relative to the benchmark index, the Utilities are so far one of the few 'canaries in the coal mine'.


Chart 13. $NDX / $SPX - The tech-heavy Nasdaq 100 ($NDX) is still outperforming the relatively safer benchmark index, i..e., the S&P 500 ($SPX). While this implies risk taking is not totally dead, tech issues could very well be the 'last shoe to drop' in the coming few weeks. Until then, there's an exciting earnings season to look forward to.  


Chart 14. In terms of the number of individual issues registering new 52-week highs, breadth has been on a steady decline since the late 2016 surge. This is symptomatic of the severe exhaustion that currently plague the U.S. stock market.

Trade Smart,

Peter Ghostine (@peterghostine)


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