Stock Market Update - June 10

The market finally took a break as I was expecting but it's still not clear if the entire structure from 1862 topped or if we are going to see another W4 before another higher high. I'd like to see stronger impulse to the the downside but this market just seems euphoric at this moment, which is interesting given the economic backdrop. Yesterday, I mentioned the market was overbought, which I think it was made clear on the RSI monthly chart I posted last week. And the main reason I think the market is overvalued, it's this chart of Market Cap to GDP:

http://www.vectorgrader.com/indicators/market-cap-gdp

If you look at the chart, you can see the only time the market capitalization to GDP has ever been this high since 1950 was during the 2000 bubble. In comparison, the second largest economy in the world (China - which is growing at 2/3X as fast as the US), has a market cap of 33% of GDP vs 127% of GDP for the US. So while the market can continue to go higher and match the 2000 bubble peak on this indicator, it is inevitable this ratio will go back to its historical mean.. when will that happen is obviously the million dollar question.

For further analysis on the NASDAQ, DJI, RUT, Gold, Silver and Oil please visit http://www.ewaveanalytics.com

Short Term Trend = Bullish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

Stock Market Update - June 9

The market made it to the micro-count target and this could be a potential top. I think there are enough waves to call a correction to the Trend Average. There is the possibility of a small H&S formation with today's low (1947) marking the neckline, so we'll see tomorrow if a lower low is made or if we get a rally to form the Head of the H&S. I hope the market will finally start a decent correction, specially since I am short now. There's a common notion that the market is able to price assets in advance but I think it has gotten ahead of itself at this point. IMO, the shorter term market is ruled by speculators who tend to miss-price assets more often than not, so it's not as "smart" as some people think it is. People who have made the most money are the ones who have been able to identify the "true" value of assets and acted during market extremes. Most of you guys remember a few weeks ago I was day trading a pharma stock trying to catch some pennies here and there. To my shock, this pharma stock which I bought and sold in lots of 10,000 shares at $5 less than a month ago, was bought out today by Merck for $24.50.. Had Merck decided to make the announcement when I had these shares on hand just few weeks ago, I would have made $200,000 overnight! Argghh.. so my point is, had the market been "smart", this stock would not have traded so far below the value that it was assigned today, which I am sure is close to its intrinsic value since it is being bought out by Merck and not some Facebook like company. So should the S&P500 be at 1,950 today? probably not (as I think it's overbought and overvalued) and some day it might just go back to its true value, I just hope we're lucky enough to make money from it.

http://online.wsj.com/articles/merck-to-buy-idenix-for-3-85-billion-1402314298

For further analysis on the NASDAQ, DJI, RUT, Gold, Silver and Oil please visit http://www.ewaveanalytics.com

Short Term Trend = Bullish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

Stock Market Update - June 6

The micro count turned out to be correct and I'm assuming the target (1953) will be met in pre-market over the weekend or on Monday's session. The market has rallied hard in the past few sessions, however it is still within the Ending Diagonal scenario, so the probability for a sudden big drop is there. But if the market can keep rallying without pulling back past 1970, then it will mean the pattern has failed. It's hard to imagine this market going up without pulling back, but when euphoria takes over, there's simply no stopping it. I am keeping my positions as I expect a pullback starting early next week but I will cover (and take profit hopefully) if the market manages to trade above the Trend Average.

For further analysis on the NASDAQ, DJI, RUT, Gold, Silver and Oil please visit http://www.ewaveanalytics.com

Short Term Trend = Bullish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

Stock Market Update - June 5

The market rallied past 1930 and it reached its original Ascending Triangle target as well as the 1939 "ideal" level to call the structure from 1862 complete. I do see a potential for 1953 going by the micro count but I think the market is ready for a pullback. It will be interesting to see if 1902 holds on the correction, if that level fails then the 50 DMA will be again tested and we will see if this market intends to go for 2000 this summer. The European Central Bank's negative interest policy favors assets in general, so maybe this will be the excuse for a crazy summer rally.

I bought back the rest of my short position I sold when 1902 first broke so now I am back to all short in my short term trading account.

For further analysis on the NASDAQ, DJI, RUT, Gold, Silver and Oil please visit http://www.ewaveanalytics.com

Short Term Trend = Bullish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

Stock Market Update - June 4

The market broke out of its Ascending Triangle pattern early morning, but so far it is lacking momentum. If the market fails to rally over 1930 tomorrow, there's a chance the final leg is in and we will see a bigger correction coming. I noticed I made an error in calculating the length of W5 that I posted yesterday. The W1 is actually 24 points and not 18, so an "ideal" target would be 1915+24= 1939. But given the fact W3 extended past the original target for this wave, the slightly higher high today would satisfy a 5 wave count from 1862. I am still holding the same VXX position from last week but haven't added the other portion since we might get to the 1930's.

For further analysis on the NASDAQ, DJI, RUT, Gold, Silver and Oil please visit http://www.ewaveanalytics.com

Short Term Trend = Bullish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

Ascending Triangle Pattern

I think we finally have something that looks like a "proper" W4 after today's price action. We now have an Ascending Triangle pattern with a target of 1935, which would imply a W5 that is 20 points in length and in line with the proportion to W1 I posted about yesterday. So if the pattern materializes, we should see a rally starting tomorrow and perhaps we'll finally get a decent correction. Whether or not is "the correction", it's impossible to tell. Also, I wanted point something about the monthly chart I posted yesterday. Prior to the 2002 sell off, we had the peak in the markets in 2000 which doesn't show on the charts. And from the 1995-2000 period, the markets had a diverging 70+ monthly RSI that lasted 5 years, so it is fair to say that while the extreme overbought RSI on a monthly time frame have been great predictors in the last 12 years. The period from 1995-2000 was not a good example of this particular signal being a good indicator on its own. However, the key to this system working is the "turn of the trend", and by that I meant a death crossover or the 50/200. At this point, we are obviously far from it but it is good to keep it in mind given the fact of what has happened in the last 12 years. Also, I think the 1995-2000 period was a unique period in the history of humankind as the internet gained mass acceptance in the world during this period. This is a time that will be remembered several hundred years from now, as it is as important as the introduction of the printing press in Europe (which led to the Renaissance and consequently the Industrial Revolution). So the bottom line is, the markets might continue to rally past 2000 but it will need to stop sooner rather than later to consolidate all the gains from the last few years.

For further analysis on the NASDAQ, DJI, RUT, Gold, Silver and Oil please visit http://www.ewaveanalytics.com

Short Term Trend = Bullish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.

Long Term Market View

The market reached the 1925 target today after pulling back to the 1915 level. Technically, I could label 1915 a W4 and the wave to the high today a W5, but I have my doubts about the entire structure being finished already. I think it would look better if we have a better looking W4 and then a W5 that is proportionate to W1, which was 18 points. But whatever it is, a substantial pullback should be coming sooner rather than later. And to illustrate where we are in the long term charts, I posted the SP500 on a monthly time frame. Note where the RSI is and what has happened every time the monthly RSI has gone into an extreme. So while the market could go up some more, the risk/reward does not favor being long in the long term. If a person pulled out of the market at the first turn of the trend during the RSI overbought extremes and bought at the oversold extremes in the last 12 years, he would have 600% return without even going short. I would call this the most simple way to make money long term in the markets, not much thinking needed using this particular system.

Another interesting fact this month is that this is the 64th month of the bull market. This monthly number has coincided several times with significant peaks in the past, most notably the Dow in the 1920s, Nikkei in the late 80's, Nasdaq 2000 and couple of others than fell in the 60th and 65th. Obviously, this is just numerology and it could all just be coincidence. But there's no denying the monthly chart I posted favors a big pullback in the next few weeks.

I continue to hold the VXX from last week but did not add to short position despite 1925 being hit. I think I rather see a trend change first before adding to shorts. As of now, all trends are bullish and the best is obviously not to short blindly.

For further analysis on the NASDAQ, DJI, RUT, Gold, Silver and Oil please visit http://www.ewaveanalytics.com

Short Term Trend = Bullish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.