Good evening everyone! Hopefully everyone is enjoying their Friday night after what was an extremely hectic trading week. Let’s get right into it…
Let me start by reminding everyone that the following analysis is simply my personal opinion, and is in no way guaranteed. My formal education is not in economics/finance, and I am not a licensed professional – my opinions are based on my own analysis and research over the duration of countless hours. Please do not make any financial decisions without consulting a licensed professional (which I am not).
With that said- I believe it is quite likely we are near a major top, and here is why:
This chart displays my primary expectation for $ES (S&P500 futures) over the next month. Based on Elliott Wave Analysis, it appears that we are one ‘minuette’ wave away from finishing what I now believe is a macro ending diagonal that has been forming since the March lows.
I believe the wave (iv) low is in, and if not we should only have 1 subwave down before wave (v) begins. Wave (v) should take the form of a 5-3-5 move up, as seen above. The estimated price range for this move is measured to be 3930-3970 with a general time target of 3-6 weeks. However, the most important part is the structure. The price and time targets are general estimates, but the Elliott wave structure is very specific. As soon as the 5-3-5 structure is completed, all necessary requirements will be fulfilled for a major top to form.
There are already several additional evidences for my expectations, many of which will be discussed later in this update. One major clue will be the RSI divergence that should form in wave (v). In Elliott wave, the third wave generally has the highest RSI reading and the fifth wave forms a bearish divergence. Simply put, watch for the RSI to not exceed the high from mid January while the price does exceed the January highs.
Some additional warning signs are found in major index leaders such as $AAPL, $AMZN $TSLA and several others. Again, this is no guarantee – but when the counts of $AAPL $AMZN $TSLA and $ES_F align with each other, it is typically a major hint that the count is accurate. Take a look:
Today, $AAPL invalidated a more bullish alternative count, leaving this as the most likely outcome. Notice the alignment with $ES_F, both are finishing waves 4 of 5. $AAPL should top at roughly the same time as $ES_F.
I have (reluctantly) accepted the triangle (4) count, as opposed to the nested 1,2’s I had been watching for the last few weeks. This count fits a lot better with the general market structure.
Just as $ES and $AAPL showed, $AMZN appears to be in the midst of its final wave. $AMZN is one sub-wave behind $ES and $AAPL, and has just finished wave 2 of 5. The earnings report on Tuesday may serve as a catalyst for $AMZN to catch up, however it is entirely possible that $AMZN and $ES top slightly before $AMZN
$TSLA, the stock that makes up 1.7% of the S&P500, is also about to start wave 5 of 5. This alone is reason to be cautious and significantly supports my hypothesis.
$PYPL, same story. Wave 4 of 5 in progress. There are many other examples, all with the same structure.
So what happens when the top is reached?
$ES_F 4D (log scale)
This is the macro set up that I have been watching since November. Since the 2009 low, 5 macro waves have formed- the current one being the 5th. My expectation is that this correction will be very deep and likely complex. My target is roughly $1850-$2150, but this can vary +/- 200 points depending on how it all develops. These targets are measured using logarithmic scaling, which is necessary when viewing large trends that have grown exponentially.
Based on the current economic climate and analysis of the US dollar, I expect this bear market to be deflationary, or at minimum non-inflationary. There is such a widespread expectation of inflation under the current administration based on expected fiscal and monetary policies. This, in my opinion is a flawed viewpoint and fails to take into account several key factors such as: economic growth (or lack thereof), federal interest rates, foreign interactions, USD technicals and more. The market has been pricing in the expected inflation since the federal reserve (shoutout to Jay Powell) stepped in at the March lows. If/when the markets realize this inflation is not going to materialize as expected, a deflationary period may begin. In this situation, the USD would gain purchasing power as the price of goods (and equities) drops. This aligns with the Elliott wave count on $DXY, which indicates one more wave down before a major low – the exact inverse of how equities look.
SO…What should you do?
This is the million dollar question – and the answer is different for everyone. Each investor/trader has different risk tolerances and strategies so there is no ‘one size fits all’ solution. I strongly encourage everyone to develop a plan that works for your specific goals, and speak with a financial professional for advice. Someone who is 2 years from retirement with a 401K will have a VERY different investment/trading plan than a 25 year old with plenty of time to be aggressive and ‘hodl’.
I personally plan on scaling into a short position on the way down with a portion of my capital. Additionally I will hold cash and a portion of equities I expect will perform well over the next 2-5 years. As always, I will be trading the day-to-day action as well (with a bearish bias as soon as the top forms). I will not touch any retirement accounts, as I am in no rush to use that money – but again, that is just my personal plan. Find what works best for your goals.
I truly hope that I am wrong- I would love nothing more than to be laughed at for this article a year from now while we experience the most fruitful economy in history. Unfortunately, I have a high level of confidence in my analysis… I wish everyone the best of luck in all regards – take care.