Stock Market Outlook – Fragmented Market & NDX Turbulence

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News Buzz

• Nvidia, AMD among chip stocks falling on China fears.

• Tech selloff has erased $1.1 trillion of ‘Magnificent Seven’ market cap in 5 days.

• Market veteran Jim Rogers on stocks: ‘I’m waiting for something to go wrong.’

GOOG Cycles

• Continuing with magnificent 7 updates, today I will look at GOOG.

• The weekly cycle composite below suggests that GOOG may be pressured by longer cycles and could roll over soon.

• A “noisier” daily cycle composite (I used all detectable cycles from the daily chart) suggests a cycle trough in October, which rhymes well with the weekly cycle composite.

• This is a good example of how the cycle composites approximately identify turning points in time but do not necessarily strongly correlate with the price levels.

• For example, a lower low in the cycle composite can be a higher low in price.

• As another example, a cycle trough in the composite may only correspond to a sideways move (correction in time) in price.

• These observations are important to remember when reading cycle composite charts. The cycle composite charts can be used in conjunction with technical analysis or EW charts to get better insights about future price moves.

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SPX RSI Considerations

• The SPX chart below (courtesy of SentimenTrader) indicates that the relative strength index (RSI) is “overbought” on all time frames from daily to yearly charts.

• “Overbought” RSI does not mean that SPX cannot continue higher for a while, but it suggests that eventually, it should reset on all time frames, implying the corresponding weakness in price.

• Ideally, we like to see a negative divergence between the price and RSI, i.e. a higher high in price with a lower high in RSI. That is typical at the tops but not always; sometimes, peaks in the price and RSI coincide.

• The chart below shows the multiple time frames RSI for SPX over 100 years.

• Red dashed lines represent my markings.

• There was a simultaneous peak in the price and RSI in 1929.

• In the 1960s, the negative divergence indicated slowing price progress for ten years, and eventually, the 1970 bear market erased all gains of the past decade.

• The RSI divergence in the late 1990s resulted in one of the most severe bear markets in the last 100 years.

• The present long-term RSI negative divergence has been in progress for a few years.

Market Summary

Market Data

As of close on 17 July 2024.

What Has Been

• Bad day for NDX and SPX, not unexpected.

• New outlets say NDX and chip stock were down on China fears. But we have warned that some of Magnificent 7 rolled over or are about to do so.

• To muddle things a bit, DJI had a green day.

• Dow advanced 243.73 points or 0.6% to 41,198.21.

• S&P 500 declined 78.92 points or -1.39% to 5,588.28.

• Nasdaq declined 512.41 points or 2.77% to 17,996.92.

• Russell 2000 declined 24.01 points or -1.06% to 2,239.67.

• The major Asian and European stock markets had a mixed day.

• OPEX on Friday may cause some whipsaws.

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What is Next

• As detailed in later sections, SPX and NDX can extended lower. However . . .

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