Friday March 17th 2023
this week's storylines
U.S. market indexes and U.S. market sectors mid-term trend: bullish
As we prepare to change the service we offer you in an effort to focus more on the forest, this market sure is throwing a lot of trees at us. Last week, the market broke down with purpose. This week, the market extended lower early in the week before fracturing all over the place. Financials and energy were pummeled. Apparently all of the money coming out of those two sectors went straight into technology, which countered their losses with an over-sized gain. Meanwhile, Blue Chips like SPY and DIA simply spun in circles, swapping up and down days in volatile fashion. All of this is exactly the type of action we'd expect from a larger degree countertrend price pattern. It's not supposed to make a ton of sense. It's just meant to fool you into thinking it's actually going to go somewhere. Moving forward, we'll be able to provide you with trade ideas on the stocks that are breaking the mold and actually going somewhere. But overall, avoid the bate and continue to err on the side of caution until there are clear and tradable opportunities available.
Let's start with the market leader, QQQ (Nasdaq) which posted a gain in excess of 5% this week. That's an impressive move, but it's clearly taking place in the midst of a countertrend up move and there is no good reason to think this new strength is sustainable. We have considered the pullback off February's high to be the start of a larger B wave pullback as shown in green. We can't completely rule out the possibility that green wave B ended, but based on size and time, it seems less likely. More likely is for the market to again do what it's been doing for a while now, which is to reverse back in the other direction and continue this choppy and indecisive B wave pullback.
The other aspect remains the incomplete look of the overall recovery off October's low. After this week's strength, it's clear that February's pullback is the countertrend pullback we thought it would be, and that a larger recovery will ultimately form. These are the common themes we see on most ETFs. A larger countertrend recovery is expected, once the current pullback completes.
Contrast QQQ's strong week with the week XLF (Financials) had. It tanked and moved back down towards its multi-year low near 30.00. Label the smaller time frames however you want; there's no getting around the fact that all upside action off the 2022 low is a countertrend move, which can only mean that a larger pullback is going to form.
Same on XLE (Energy). Elliott Wave has been telling us to expect the formation of a larger pullback for months. It took awhile but this sure looks like it. Maybe it doesn't happen in a straight line, but one way or the other, we have to think XLE is on its way back down to July's low. Needless to say, these charts display a pretty remarkable contrast to what we're seeing on technology.
In the middle resides DIA (Dow) and SPY (S&P 500). DIA was weak early this week, posting losses on Monday, Wednesday and Friday while moving deeper into its yellow support area. We continue to call this pullback a countertrend move that should lead to another five-wave up leg like what we saw off October's low. The first real clue of a low would be a move above 330.
SPY was volatile this week after confirming a larger countertrend pullback last week. This still looks like part of a B wave pullback (green) that is not yet over. We'll just keep looking for any and all indications that it has completed.
When it does complete, we expect the recovery effort off October's low to continue as blue wave B gets up to size. So long story short, expect a bit more weakness, and then some strength, and then larger degree weakness, and then... well you get the idea. It's going to be a tough market heading forward so err on the side of caution.
I can't help but post this chart every week, because every week the major moving averages play a factor. This week, the S&P 500 moved below the 200-day moving average before quickly recovering to keep it close.
One other chart worth noting is this one of the Nasdaq Advance/Decline Ratio. The Nasdaq posted a big gain this week, yet its Advance/Decline Ratio is actually moving lower and is as low as it's been since late-September. Is strength on the Nasdaq just a smoke screen with underlying weakness? If nothing else, this week's strength was clearly more focused on the big names, not the widespread variety.
U.S. stock market overview
dow: -47.66 (-0.15%)
s&p 500: +55.05 (+1.43%)
nasdaq: +491.63 (+4.41%)3
near-term outlook: neutral
There were some big swings during the week, but none of it appears to represent any real change. The S&P 500 still looks to be in a B wave pullback off February's high. About the only thing we can really expect from such a move is volatility and indecision, which is precisely what it has delivered so far. Remain cautious until it's clear this near-term B wave pullback has completed and the next up leg (blue wave C) has begun.
recommended mid-term investments
changes made to our investments this week
- no changes were made
our current investments
our pending investments
a closer look at our current and pending investments
our current investments
We have no open trades currently. That will change as this pattern progresses, for now we're good staying out of the fray.
our pending investments
TSLA (Tesla): I'll just keep my comment the same from last week here: "Why, you ask, do we have a stock here when we don't cover stocks? It's because we're getting ready to change our service to a once-a-week format that will include stock analysis, and it seems worth bringing this pattern into the loop now. There is no guarantee that it will pan out, but if nothing else, TSLA is at a really interesting point that is fully worth watching from here. As you can see, this guy gives us a sharp, trendy-like up leg that is now being followed by a larger pullback. If this larger pullback proves to be a countertrend move, I'd want to own at least a bit of TSLA because this would be the best Elliott Wave entry point we could possibly hope for. As such, TSLA would be a buy if it can move back up to 200."
XLP (Consumer Staples): XLP still sports an interesting price pattern in that the October/November up leg still looks trendy and the pullback since then looks corrective. But boy is the pullback part slow, not what we'd expect if some dynamic up move was beginning here. It's time to get moving or we're going to close this trade setup. If it does finally find its way higher, we will buy it once it gets back up to 75.00.
ETF chart database
*key for each chart's box color: Gray = mid-term countertrend move, Green = mid-term uptrend, Red = mid-term downtrend
market index ETFs
market sector ETFs
global market ETFs
bond and volatility ETFs
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