If you are an active trader, then you may well have been noticing the recent strength on the semiconductor stocks, particularly stocks like Broadcom (AVGO) Intel (INTC) and Microsoft (MSFT). Although there are a few more semiconductor stocks that have shown strength since the Dec 2018 low, based on the weighting, the stocks listed are the more important stocks to follow in my opinion.

Taking a look at the ETF called XSD, it’s pretty much the SOX in disguise, I favor the frenzy and euphoria that we are seeing now, is likely a 5th wave of a large impulse wave from the 2009 low. It’s common to see Technology stocks being bid when traders and investors are chasing the market. We saw that into the Oct 2018 high as the FAANG stocks were being bid up. Today it’s not so much the FAANG stocks, but the semiconductor stocks, which is very reminiscent to what was seen into the 2000 tech bubble top.

Crossing referencing XSD to the SOX, whilst the SOX remains above 1477 a bit more upside could still be seen to end wave [5] of wave 5, that is approximately the 82.00 – 80.00 area on XSD. However until we see an obvious sign of a reversal on the SOX and XSD, then for now, I would respect the recent strength on the SOX/XSD above 1477/82.00 respectively, although I am actively looking for signs that the move from the Dec 2018 has finally burned out. When it turns and reverses, I suspect we see a swift and fast decline as today’s buyers become tomorrows sellers.

SOX

XSD

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Jan 2018 – All 3 markets (SPX NIK225 & DAX) rally together to make a peak, then sell off.

Oct 2018  – The DAX fails to confirm the new high on the SPX and NIK-225, thus creating a bearish non-confirmation with the DAX to set up for a move lower. If you recall the media was hyping up the story that the US economy and stock markets were strong enough to go it alone and not to worry about what the rest of the world was doing, that turned out to be a bad error on the media’s part.

Apr 2019 – SPX is within touching distance of its all-time high, yet the DAX and NIK-225 bounces from the Dec 2018 low are relatively weak compared to the SPX move. Whilst the SPX may make a new all-time high, if the DAX and NIK-225 continue to lag the US markets, it will again support a bearish non-confirmation, similar to what we saw in Oct 2018.

Unless the NIK-225 and DAX play catch up, I think the current move on the SPX could be very reminiscent of what we saw into the Oct 2018 high.

Since its inception the stock has pretty much gone vertical, (subject to corrections). The strong upside is supportive of an impulse wave. When you take a look at a weekly time frame, you can actually make out 5 clear waves, which makes it easier for Elliott wave users to define the waves.

I suspect the move we have witnessed from the 2014 low is that of an impulse wave. When we take a detailed look at wave [5], it too appears to have 5 waves, so it could well have ended the whole cycle from the 2014 low.

A strong move back below $95.00 is needed to support a reversal and suggest wave [5] had likely ended, although an impulsive decline in 5 waves below $95.00 would be a good sign to support a reversal.

A move in 3 waves to correct the 5 wave advance from the 2014 low towards $75.00 – 70.00 would be a realistic target.

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XLRE

This index is one of the more cleaner markets and showing a potential impulse wave (5 wave advance) from the Dec 2018 lows, whilst many other sectors and US stock markets have lagged this index, the clarity of this particular index, actually highlights a potential setup for a reversal and an opportunity for those that want to bet on a potential decline.

The recent gyrations over the last few days appear to be showing a possible bearish wedge. Elliott wave users call that an ending diagonal, it’s a common pattern that is seen in a 5th wave of an impulse wave. A strong move below $36.00 – 35.50 would be the first clue to supporting a move lower.

DRV

I came across an ETF that may be of interest to those that are interested in participating on a decline for XLRE. As XLRE moves lower, the ETF called DRV would move higher. If a peak is setting up for XLRE, then this could be a great opportunity to capitalize on a decline on XLRE.

Note: 

If you do not fully understand how the 3x leveraged ETFs work, then I strongly advise against purchasing DRV. Please do your due diligence.

Do you have a stock that you want evaluating? Purchase a consultation call and get an independent review through the lens of Elliott Wave. With the US stock markets vibrating around the previous all-time highs, it may be prudent to think about protecting any gains you have.

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The recent price action we have seen this past week, potentially has the makings of a reversal in progress. Some world stock markets are showing an outside weekly bar reversal pattern, which is a strong pattern to support further weakness.

Looking at a number of highly correlated markets, they are showing a very similar pattern. I favor an impulse wave (5 wave decline) is in progress, an up-down sequence is still needed to develop a 5 wave decline from their respective swing high. If we can count 5 waves to end an impulse wave from last weeks high, a bounce thereafter in 3 waves would support a move lower and offer a selling opportunity.

If the advance from the Dec 2018 low ended at last weeks highs, then far more weakness is expected. So going into next week I am looking for the initial completion of a 5 wave decline on selected markets that are showing the cleaner price structure such as SPX & USDJPY etc. Bounces in 3 waves can be sold with a clear risk control point (origin of the 5 wave decline).

If the markets have transitioned into a “risk-off” environment, then the trade will be to sell rallies until a time the market reverts back to “risk-on”.

USDJPY

SPX

HSI (Hang Seng)

Note: It’s important for the bears to develop a bearish reversal clue such as an impulse wave. To date, we don’t have that clue, but with the potential for a 5 wave decline as well as the weekly outside reversal bar patterns on many world stock markets, this has the makings of a market that has ended its rally from the Dec 2018 low and moving lower.

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