Weekend Update

Buckle up and get ready for a volatile week for the markets. CPI, PPI, FOMC and quadruple witching all this week. Regardless of which count prevails (see below), I’m expecting to see bullishness run through the second quarter, to be followed by weakness in the third quarter. The two wave counts obviously disagree on the depth of the coming weakness. We come into the new week with all equity indexes except for Biotech on long/buy Signals. Energy and Real Estate, while long/ are sitting on key support, which should it fail, would lead to bearish Signals for these sectors. Interestingly, the industrial metal Silver is also on a “cautious” buy Signal. Breath remains weak overall for the markets and must improve if the bullish scenario is going to be propelled to the levels I”m expecting over the next several years.

Much is made of market breadth. And one means of evaluating breadth is looking at the percentage of stocks above their 200 day moving averages. Below is a monthly chart of the SPY in orange and the percentage of stocks above their 200 day MA in red/green candlesticks. The red circles on the SPY chart highlight swing lows. The green circles on the percentage of stocks above their 200 day MA indicate post lows highs in percentage. What I want to point is a couple of things: i) the percentage of stocks above their respective 200 day MAs occurs early in the bull run, and ii) for the bull run to have legs their is a minimum threshold that should be achieved, which is demarcated by the horizontal line. This run has yet to achieve that level.

The SPY indicator chart I introduced last week has triggered an immediate term sell. This can be anywhere from a day to a week, to a multi-week pullback. In other words, this indicator doesn’t signal SWING changes per se, just immediate term weakness. While, we’ve witness some improvement this month, more is needed for new SPX highs in my opinion.

The bullish count is that subminuette wave iii concluded on Friday and it now calls for a modest pullback in subminuette wave iv to be followed by a push up to complete minute wave [iii] of minor wave 3 of intermediate wave (1).

The Nasdaq has been leading equities. In contrast to the bullish count highlighted above, the QQQ count is that minor wave 3 is already complete or completing. If correct, then we should see a relatively deeper pullback for the Nasdaq than we’ll see for some of the other indexes.

Even the bearish count shown below is calling for more upside before a more substantial pullback, or in this case correction. The (Y) = (W) target for primary wave [B] is ~4450, or nearly 200 points north of the current level.

About alphahorn

I received an MBA from Columbia University’s Graduate School of Business in New York and am a Wall Street veteran. I’ve worked for a number of investment banks including Smith Barney and First Boston/C S First Boston in New York. Over the years, I have developed my own Proprietary Swing System and I combine that System with my own Elliott Wave Analysis to trade.
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