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Bearish Engulfings
BraVoCycles Newsletter
March 10, 2024
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Market Summary
Friday’s market action was characterized by persistent selling after an initial gap up and spike. This produced a bearish engulfing in many important stocks, sectors, and key major stock market indexes. We will examine several examples. The message is that this signals a potential market turn to a bearish downtrend. Indexes could still try to bounce, which would be a gift, before continuing lower.
Cycles are about to turn down, and I could count completed EW structures in the majority of indexes, which further adds to the bearish case.
I mentioned a couple of times that Bank Term Funding Program sunsets on 11 March, which, if not extended, will reduce the liquidity that has been supporting the market. I also mentioned the new Moon on 10 March and a VIX cycle that rhymes with the new Moon cycle. Thus, if indeed VIX starts pushing up that would normally correlate with the market going down.
The short-term analysis is getting more in line with the intermediate- and long-term analyses, which suggest a reversal is due. I mentioned on Thursday that the lighting could strike unexpectedly around the tops. It did on Friday. Raising cash in overbought situations is not a bad idea.
My longer-term expectations do not change. I will repeat from last weekend's report: “Despite the market's resiliency and FOMO, I expect a correction in the next 2-4 months, initially.
Market data as of market close on 8 Mar. 2024.
Technical Analysis of NVDA
Notably, on Friday, NVDA, one of the AI and Magnificent 7 leaders, also made a very pronounced bearish engulfing candle. Likely a reversal to a downtrend. It will affect the tech sector and the overall market. Very strong technicals are a counterargument, but they do happen in parabolic rises.
It could also be interpreted as a bearish Dark Cloud Cover (see the explanation below). Since the red candle had a higher volume than the preceding green candle, it indicates a strong downtrend to develop.
Other Bearish Engulfings
NDX (and SPX, SPY, SMH, META, …) also had a bearish engulfing reversal after negative divergences in technical indicators indicated a loss of momentum.
SPY too had a bearish engulfing on increasing volume. Overall, negative picture, but not surprising. I have been preparing you for this. Did I tell you the new Moon story and connection to VIX? 😊
SMH is important.
META, another one of Magnificent 7.
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Liquidity
This is the largest weekly tech fund outflow on record, based on my understanding, but certainly in the last seven years. The sentiment might be shifting.
Bonds
My analysis suggests bonds should do well in the next few months, and interest rates should pull back, notwithstanding the usual ups and downs, whipsaws.
This time Biden might be right.
How about stocks vs. T-bills? Let us look at the S&P500 earning yield (using various methods) minus 3m T-bills. When the difference is high, buy stocks; when it is low, like now, sell stocks.
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Sentiment
Montgomery’s cover page indicator.
How did it work in the past?
Crypto
As of 7:30 pm EST on 9 Mar, 2024.
Are you bullish on Bitcoin?
Yes or No? |
This might be bad for Bitcoin.
After a 3-wave corrective drop on Friday Bitcoin bounced and is trading mostly sideways as of this writing (Sat at 7:30pm EST). Like it is preparing to make another push higher.
eBook: 3-Year US Stock Market Outlook
The stock market will exhibit significant volatility this year, IMO. To prepare for market swings down and up in the next couple of years, read our eBook about the stock market outlook for 2024-2026. To get it for FREE, share the link below with your friends, family and on social media and if 2 friends subscribe to BraVoCycles Newsletter using your link, as confirmed by Beehiiv.
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