This weekend update is an edited excerpt of our regular weekly digest to our members.
Many pundits are pounding their fists on the table for either a new bull market or a bear market counter trend rally, and believe in one or the other vehemently. Fortunately, we don’t “believe”. Instead, we try to elucidate what the charts tell us and then assign the highest probability to one or the other. As such we will provide a detailed comparison with two European markets, and we hope that by the end of this update we all walk away a little bit wiser.
Two weeks ago we provided and alternative count –new impulse up- on the SPX/SPY, but the NDX and the NAZ are not following along (see here); and for the record still haven’t by continued lagging (after being the leader for years) and have since shown continued price overlap.
Is there any other evidence? How about the European markets? Overseas markets such as the German DAX and British FTSE are highly correlated with the US markets (see Figure 1).
Figure 1: SPX (black), DAX (red), FTSE (blue) are highly correlated.
When we look at these two European markets in more detail (since the recent February 10, 11 lows) we don’t see an impulsive looking wave up, but rather overlapping price action. Yes, the internal (green) waves on the DAX are 5s, but the larger (red) waves (i?, iv?) overlap; thus –unless this is a set of nested 1st and 2nd waves (we then need to see a serious blast off next week)- this is a larger abc wave: corrective. Although weirder things have happened, with the aforementioned very strong correlation it is hard to see the US in a bull while Europe is not.
Figure 2: DAX and FTSE do not look impulsive.
Hence, odds do not favor a new bull market. In addition, neither has the US market (SPX, DOW) made 5 larger waves up yet. Until that happens, we can currently not be certain at all a new bull has started. Others may point to strong market breadth as a sign of the new bull. Indeed breadth has been strong, but no Zweig breadth thrust was recorded off the SPX1810 low. The last one happened October 7, 2015. In fact cumulative breadth readings are now at extreme levels that coincide with tops, without the market having made a higher high yet since May or even November 2015. Yes, that’s almost a year without making higher highs and higher lows; the hallmark of a bull. Instead we’re faced with lower highs and lower lows; the hallmark of a bear.
BUT, IF it is a new bull then for those who think they missed the boat; please remember this is then only wave 1 up, and wave 2 will be the real buying opportunity. IF it is a new bull, we will help you in finding that wave 2 low. No worries. BUT, again that are a lot of ifs and major b/primary B is and remains our preferred count until proven otherwise.
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.