Last weekend we laid out the likelihood there would be a large move out of the wedge or pennant over the following 5 trading days. One of the options was for a breakout C wave to the upside fulfilling our projection of 1980-2040 as an ABC top off the 1867 lows. This came to pass as we hit 2020 on the nose and then reversed hard on Friday to the downside post FOMC meeting.
We have a lot of charts to show you this weekend that should help with the big picture. The bottom line though is we have been saying for 3 weeks now that a re-test of 1867 and possibly a drop to 1810-1840 would occur before this interim market correction or Wave 4 pattern could confirm an intermediate low for the SP 500 index (As well as others).
So this recent rally off the 1867 lows on August 24th is simply a “correction” rally in terms of correcting the downtrend with a short-term ABC uptrend. This works off oversold conditions and sets the markets up for that final washout low still missing.
The rally to 2020 was not by any means random. It tagged the 13 week moving average line on the nose and reversed. 13 weeks is Fibonacci number and we use them often for crowd behavior. Also, the C wave from 1903 B wave lows was 117 points, and the A wave from the 1667 lows was 126 points, so virtually we have A equals C at 2020.
All of this is not a surprise as this is common Elliott Wave pattern behavior complete with Fibonacci ratios and moving average overhead resistance.
First lets look at several charts below and then we will discuss what we see ahead. The charts include the ABC rally on the daily SP 500, the weekly chart showing the 13 week MA tag and rejection, and then a few charts showing the relatively low percentage of NYSE stocks above their 200 day moving average line (23%) etc. and the Biotech sector analysis.
A picture tells a thousand stories, but these pictures show the internals of the market topping in April and May 2015 in a secondary high of stocks above their 200 day MA lines. We see the market shortly afterwards followed down, bottoming at 15.74% above their 200 day line at 1867 SP 500 on Aug 24th, and then a rebound filled that “gap” in the chart below at about 26%. Now we are heading back down again to test those lows if not a bit lower.
The chart below shows the Daily SP 500 index with the obvious ABC upwards rally, where C equals A. This again is what we projected a few weeks ago, it’s a common pattern to correct negative sentiment and suck a few Bulls back in before a final flush.
Finally, we show the weekly chart perfectly tagging the 13 week EMA line and rejecting the market there post FOMC on the dot. As long as that 13/34 line is crossed downwards, the market remains in an intermediate downtrend.
Now, the strongest index upwards off the lows may have been the Biotechs which have been doing well off their August 24th print lows. However, they again ran smack into Fibonacci 61% retracement resistance late this week and were rejected. This sector probably will be key to keep its legs going in order for the market to put in a nice bottom in the next 2-3 weeks time period, and its probably a good place to scout for values because Biotech stocks by themselves are somewhat market agnostic as each company has their own pipeline and data points etc. But, this index IBB ETF bears near term watching as its either going to consolidate and move higher, or get rejected hard at the 61% line.
So what is the bottom line? Nothing really changed from our views last weekend in our forecast report. We felt at some point either way in 2-3 weeks the SP 500 could re-test the 1867 lows, and likely as low as 1810-1840 per our typical pattern analysis. We also felt it was a good time to get a shopping list together of stocks you like to look for better entry points. In addition, we said to focus on which sectors are leading on a relative basis and or beat down the hardest.
We think Gold has formed a Bear cycle low which we have been saying since July at 1090. We are positioned long in Gold at our SRP service. We also think Oil is in the final stages of a bear cycle low and we will position accordingly there. We didn’t say we are buying energy stocks, we are talking about the commodity itself.
Selected stock picking is now key for sure. We see a lot of stocks we like that are really beat down and we plan to over the next few weeks take advantage. Are we out of the woods yet in terms of the broader markets? Not really, we will need to see this market re-take out the 2020 highs this week to get comfortable, we will continue to respect the potential for some near term downside targets we have. However, we are also in some cases and sectors licking our chops to put on some long positions to take advantage of these oversold conditions and potentially better values.
We also expect to continue with our long-term research reports at SRP Research. We are never afraid to take a contrarian stance on small to mid cap stocks we like. This past few quarters we shared our research on QURE (Uniqure) in February at $21 per share. 7 months later that Gene Biotech is at $34 up 70%. We shared our report on TRVN (Trevena) at $5.80 in March as well. That stock is at $13 plus for 120% gains. We also sent out a report on STRP in late July recently at $28. That stock hit $38 this past week for 33%. ONCS was the subject of a report at $5.30 to SRP members in May, and it soared 55% to 8.50 and is now at 6.50.l We think Oncosec could be a multi-bagger over the next few years time if all goes well. Last year we wrote up and shared a report on CHRS (Coherus) which we said was the next Amgen. The stock soared from $14 to $33 in the following months for 130% gain.
Obviously we get some wrong, like CALA which has dropped from 17 to $6.50. However, in that report we said we wanted to see Combinatorial data, not monotherapy data to get excited. So far they released very good monotherapy data and the market yawned.. However, the widely esteemed Adage Capital maintains a huge position and has recently been adding ahead of Combo data due.
So we are actually excited about coming out with more research report stocks to consider for long-term investors. In fact, we plan to send one out this week to SRP members which will be our first since the July 28th STRP report. We think this company which is in the BioMedical space and has a product (if you will) already rolling out in clinics could double in 3-6 months. Insiders are buying, and the shareholders have a large stake along with insiders, shorts are buried deep in the position. We smell a huge rally as they are about to roll into one of the worlds biggest markets for their solution.