When looking at the S&P500, DOW, NYA, WLSH or even RUT one would think a new bull market may have started, which many market pundits, investor sentiment, surging market breadth etc would make you want to believe too lately. Rightfully so, because it is a bear market till it isn’t. Regardless what anybody says. Price is the final arbiter. Period. Not you, not me, not anybody else. Price is what matters. Very simple. The answers we look for are always in the price charts. Not on CNBC, Marketwatch, Bloomberg, etc.
Thus for a new bull to have started we need to see 5 non-overlapping waves up, possible a leading diagonal triangle (5 overlapping waves) to signal the start of a new uptrend. So far that count is certainly possible on, for example the S&P500. See hourly chart below. Cont’d below.
Using the red and green 1,2,i,ii,iii,iv count, respectively, we see 5 non-overlapping waves of a 1st and 2nd wave (Red) with a possible subdividing 3rd wave (green). Price is finding support at the lower blue trendline, see purple arrows, and marches higher albeit the hourly RSI5 and MACD start to look a bit weak and bleak. But, that’s not entirely uncommon behavior at this stage of the rally. So far so good. Right!?
Well, we would like to see this type of wave pattern across indices, and especially TECH. Why TECH? Because the NDX and NAZ will most often lead rallies. So let’s take a look at the NDX. See below. Also here a similar wave pattern. But wait, today’s low overlapped with February 26th high, and since then price has barely advanced. Tech is not leading. Cont’d below.
Clearly we see what is labelled as green wave a/i and d/iv on the SPX overlapped on the NDX today. Per EWT waves 1 and 4 cannot overlap in an impulse wave. This overlapping price pattern in the NDX strongly suggests the current rally is not the start of a new bull, but a b-wave rally. But, can this then be a leading diagonal triangle instead? Surely, but if so then price will at a minimum retrace back to the red b-wave level as that’s how triangles work. That would translate to SPX 1890… If that happens, by then even an EDT is off the table for the S&P500.
The lack of advance in the NDX, and NAZ for that matter, is also evidenced by their daily charts. We see the (blue) EDT and how price has moved outside. A first signal. We also see negative divergence on the daily RSI5 since Friday, which kicked in today. Divergence is only divergence till it isn’t, but it’s a warning sign. Then the first TI below the price chart is our A.I. Buy/Sell indicator. All 3 TIs that comprise the A.I. have turned down in the >80 zone. This is an initial sell signal. Once all 3 drop <80, the sell signal is confirmed. This happened last in early November 2015… We all know what happened since…
Hence, the price chart of tech is not looking as joyful as that of say the S&P500 and/or DOW. Price hasn’t moved much at all over the past 7 days. Tech is not leading the advance. Just take a look at FB , GOOGL, NFLX, AAPL, for example. All ugly looking charts. (GOOGL shown below)
Leaders becoming laggards. Add to that the fact that volume has been much below average compared to major bottoms such as in March 2009 and October 2011, and we have additional evidence that a new bull may very well not have started. For that to happen we need buying volume.
Are we then dealing with a b-wave rally. Most likely yes. Namely, b-waves are -as mr. Elliot said himself- sucker plays. One trick ponies. They make the masses believe the uptrend has resumed. With that in mind, can we say oil/energy sector? Clearly the broader indices exposed to a lot more individual energy stocks compared to tech have rallied on the backs of these beaten down short-squeezed stocks. Oil=the market is a one trick pony. As soon as that relationship brakes, and it will as all such correlations do eventually (not so long ago it was China, remember!?), the market is left to its own demise, leaving many stranded who appear to sell tech to chase energy related stocks and ETFs.
As you notice, Intelligent Investing tracks many lines of evidence to determine the market’s next big move, Elliot Wave, S/R, TIs and TAs are several of them. Holistic objective analysis allows us to be on the right side of the market more often than not, without any preconceived notion or opinion. We use just the facts. Just like we did here! Do you want to be on the right side too? Of course! Then please join us here.