Key Takeaways
- Friday’s strength in SPX and QQQ has broken initial resistance, giving reasons for optimism that a more meaningful low could be in place.
- QQQ bounce makes both legs of decline equal in price and time into late May.
- Ethereum has fallen out of favor vs Bitcoin, and BTCUSD should be favored.
Changes in Trend finally have occurred in SPX and QQQ. Don’t look now, but SPX and QQQ have finally recouped areas which were thought to be important as resistance to the downtrend from late March. SPX has exceeded 4114 while QQQ has also exceeded peaks from mid-May. Technically these are initial signs of constructive progress for indices which have broken downtrends, giving reasons for optimism towards a larger rally. While more is needed to create the initial five-wave rally off the intra-day lows from 5/20 to have real conviction from an Elliott standpoint, (and QQQ will need to recoup 318), there’s enough in place to think markets likely can continue higher, and that my recent analysis of a final pullback in June very well could be wrong. Bottom line, a long bias up to SPX 4315 looks proper, with 3982 being critical support. See daily SPX charts below that show Friday’s breakout, which looks important.
QQQ has made two equal waves lower in price and time which give some confidence that it also has bottomed
By exceeding mid-May peaks, QQQ has likely solidified this decline from late March as being complete. One can see on the chart below that the pullback from late December into late February of two months was nearly exactly equal to the decline from late March into late May in time. Downtrends from late March have been broken as of today, Friday 5/27, which is important in my work.
Additionally, in price terms, this pullback from late March was 100% equal to the initial decline in price, with 285 being key support. While I truly believe that movement over 318 is going to be necessary in helping QQQ show similar positive structure as SPX (and also DJ Transportation Avg which has recouped 14,272), I feel enough is in place to justify longs and will simply use dips to buy.
The weekly DeMark counts did not trigger official buys, which I was waiting on to happen. This would have provided more confidence, and my cycle counts still point to late June for a bottom. My suspicion is that rallies into the mid-June FOMC meeting might cause the initial peak and then a retracement into late June. This would provide a very attractive opportunity to buy dips, bolstering my expectation initially outlined in my January 2022 Technical Outlook for a second half 2022 rally to get underway.
Finally, as was noted earlier in the week, we’ve begun to see positive outperformance in equal-weighted Technology and Financials, which is important towards thinking these sectors could start to make a more meaningful rally.
Ethereum has fallen out of favor vs Bitcoin this past week
Ethereum has fallen dramatically out of favor vs Bitcoin this past week, and charts of ETHBTC show this ratio to have broken larger trends going back since June 2021, nearly a year ago. In the short run, this could be a positive for ETH as momentum indicators like RSI have fallen to the lowest levels in nearly a year on ETHBTC. Moreover, this also lines up with ETHUSD holding key support at 1700 from last summer. However, bounces will need to recoup this larger area of former trendline support which was broken to have confidence of ETH starting to show more meaningful outperformance, which would favor owning Ethereum over Bitcoin. Bottom line, it’s right to expect a bounce in Ethereum relative to Bitcoin, but BTC looks like the clear favorite, barring a move back over this prior trend.
