Sample- Market Timing and Price Projections

Table of Contents

1. Summary

2. Introduction

3. Cycles Update

4. EW Charts of Indexes

5. VIX update

6. Where are Bonds Going?

Summary

Did the market top for now? Perhaps on Wednesday. Certainly, indexes are losing momentum. One could make a case that the Elliott wave structures in ES and NQ are completed, but I could see other ways to count that allow more up at the micro level. Ideally, I would like a bit higher for ES and SPX to reach their targets (SPX on the daily chart 4583-4618), and RTY/RTX, but I am on alert watching for the top. It could take a couple of more days for all indexes to roll over, perhaps for a 3-5% pullback toward mid-December. Most indexes achieved the cycle price targets, some just barely, so we should allow for a bit more up. One more pop higher is allowed by the cycles and is also consistent with the beginning of the month seasonality (pension funds inflows). Whether a new high will be achieved or not is largely academic as the upside is limited, in my opinion.

Introduction

DeMark sequential-9 triggered a sell signal last week in SPX futures, i.e. ES (and in NQ and YM also). It is often early but alerts us about a trend change soon. Usually provides a good trading opportunity, and sometimes more. In mid-July there were both daily and weekly DeMark sequential-9 sell signals, both several days early, but eventually led to a nice 2+ months correction.

Figure 1 – DeMark sequential-9 sell signal on the daily chart.

Not sure why many people are still bullish on technology stocks, like AI is all mighty, going to the Moon, etc., as if they did not learn the internet stocks lesson of the late 1990s.

NDX/QQQ is extremely overvalued, over 20-year maximum (that I could observe in my data feed), relative to small caps, DJI, and utilities, … This gap normally closes by NDX dropping much more than other sectors during bear markets. I expect NDX to reduce this gap into Oct’24, and, longer term, much more into the early 2030s.

Note a strong weekly negative RSI divergence relative to July NDX’s high! This signals a significant correction going forward (see my discussion of cycles of the Magnificent 7 two weekends back).

Figure 2 – QQQ “health” chart.

Cycles Update

To avoid being too repetitive (see the last couple of reports) let me just state my summary view.

A complex cycle top is forming in that several cycles from very short ones to medium-term ones should form peaks between now and 4-5 days from now, say, in aggregate, 2-3 +/- days from now (40D cycle peaked on Wednesday a week ago, in my opinion). We will dig deeper into this subject in the weekend report. This also rhymes with the positive seasonality at the beginning of the month due to pension funds inflows.

This cycle peak may correspond to the top in the stock market if we have not seen one already on Wednesday.

EW Charts of Indexes

I have been mentioning a complex top formation due to a battle between multiple cycles, some pointing down and some pointing up, which resulted in what mostly looks like three-wave (corrective) moves subject to many EW interpretations.

All shorter-term higher cycle targets for indexes are achieved, some just barely so we should allow for still slightly higher. But one more high or not, a correction is coming soon, in my opinion.

I am presenting SPX and NDX micro EW counts that allow both options, topped or one more high, but both bearish (for the bigger picture charts see the weekend report two weeks ago) but eliminated micro/nano labeling as the options started to multiply.

To make a long story short, for SPX I consider already topped with red 2. If another high, which is possible, it will be either red (2) or Blue (B), as I do not consider the pink count seriously at this time.

For NDX my preferred option is that it peaked on Wednesday, but if one more high so be it (I will see how to relabel the sub-waves). It was only three waves down from Wednesday’s high, so far, which allows for another higher high, but also for two other count possibilities for further down. I would not split hairs here, need to see one or two more cards. As I mentioned last time, one more high or not is academic in my opinion, it is topping!

Figure 3 – SPX EW count alts and the price target.

Figure 4 – NDX EW count alts and the price target.

For RTY I added another possible EW micro count, brown, for wave (v) but essentially the same target as before (more for my own micro/nano tracking in real-time). I still expect RTY (small caps) to push slightly higher into the 40D cycle target (green box) which also encompasses some Fibonacci targets, inverse head and shoulders target, and triangle projection target. High probability that RTY will get there but keep in mind that at some market tops truncations occur and targets are not fully reached.

Figure 5 – RTY EW counts alternatives and the price (cycle) target.

VIX Update

Identified VIX vs VVIX divergence two days ago resulted in a bounce in VIX. But as I mentioned in the previous reports bottoming in VIX often takes time. It looks that VIX micro rallied in three waves, unless it makes another push higher soon, while VVIX rallied in five waves. In view of EW theory this allows for five waves down in VIX, to a new low, while only to three waves down in VVIX to a higher low, thus, creating another micro divergence. We shall see, at this point I am just speculating probabilistically.

Where are Bonds Going?

Let us consider popular TLT (ETF for 20Y bonds) as a proxy for long-term bonds.

Dynamic cycles composite projection suggest a correction into Jan’24, similarly as expected for the stock market. But, unlike the stock market, TLT/bonds should rally all of 2024 and possibly longer, which we will examine in the future using weekly chart cycles.

Figure 7 – TLT cycle composite projections (from the daily chart).

Figure 8 below shows that the 80D cycle target was satisfied. Since there are no higher targets at the present time it is normal to expect a pullback. Since the advance was in 5 waves, according to the EW theory the pullback should be in 3 waves down, an A-B-C. A good target is the 86-87 area, which is also the range of the previous wave 4, likely in the second half of January, as per the cycle composite projection (we will re-examine the time and price targets periodically).

-Sampl