Hi YXI friends,
Something has finally clicked. Apologies, it took this long.
There are two things to watch, and the first one we have recognised for some time.
1) Everything has been about the semis (duh), whether it’s AMZN or GOOGL in our coverage, who are selling their own silicon.
Both stocks have moved in tandem with SOXX. Fine.
2) This market is filling up wave 5 in one shot.
Now, let me unpack this statement.
SPY Chart
Normally, I would expect a nice waves (i)-(ii) setup from the lows, followed by a potentially extended wave (iii) etc. This “standard path” is highlighted in pink on the chart above. The larger degree wave 5 could reach the 1.38-1.76 inverse extension of wave 4, i.e. the $726-755 region.
However, in our latest rally, we have skipped the standard pullbacks. The market is trying to fill the entire wave 5 in a single sharp move, driven by semis (and megacap tech until last week). While sub-waves are most common in wave 3, they are not mandatory in waves 1 and 5.
The $726-755 target region still stands (and, if going parabolic, $772 is within reason, too). The next major pullback is now unlikely a wave (i)-(ii) setup, but an actual topping consolidation dive that could undo what it did in April.
What to watch for:
When Semis start to cool, will SPY & QQQ hold up due to the bull market broadening?
Will hot money rotate into the laggard sectors, such as software and crypto?
When yields start to spike due to a prolonged energy crisis, will the market stand the heat?
I know FOMO starts to get overwhelming. It’s hard not to when semis are up 10% every day. Like Gold and Silver in Dec - Jan.
But if we have a semiconductor cooldown and an inflation-driven yield spike that rocks the market, I would actually try to avoid dips or expect laggards to catch up.
As there was no pullback, I personally failed to recognise how this rally unfolded. C’est la vie. The important thing is to keep learning.
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DISCLAIMER: This newsletter is intended for educational purposes only. Any information or analysis in this note does not constitute an offer to sell or a solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice, nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.
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