Tuesday, June 10, 2014

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:


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.

Elliott Wave Analytics

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