Weekly Stock Market Update & Forecast – Feb 3rd, 2017
State of the Market Address:
- The Dow ended the week above 20K - flat for the week.
- Shiller's Adjusted S&P P/E ratio jremains at 28.5. Arguably the second highest level in history (if we adjust for 2000 distortions) and right behind 1929 top at 29.55.
- Weekly RSI at 72 - severely overbought. Daily RSI is at 61.32 - neutral.
- Prior years corrections terminated at around 200 day moving average. Located at around 17,100 today (on weekly).
- Weekly stochastics remain at 96. Extremely overbought level associated with prior market peaks. Daily at 60 - neutral.
- VIX/VXX either at or approaching their historic lows. Commercial VIX long interest approaching record highs. Now at 9X net long.
- Last week's CTO Reports suggest that commercials (smart money) are shifting their positioning to net short. For instance, the Dow is 4.5X, the S&P is at 2X and the Nasdaq is at 4X short. That is a significant short position against the market.
Elliott Wave Update:
Since many people have asked, I will attempt to give you my interpretation of Elliott Wave and how it is playing out in the market. First, I must admit. I don’t claim to be an EW expert, but I hope my “standard” interpretation is of help.
Let’s take a look at the most likely recent count on the S&P.
Long-Term: It appears the S&P is quickly approaching the termination point of its (5) wave up off of 2009 bottom. If true,we should see a massive sell-off later this year.
Short-Term: It appears the S&P is in process of completing intermediary wave 3. As soon as it does, the market should correct in an intermediary wave 4. Then push higher, perhaps to a new all time high in wave 5 of (5). If true, this count should terminate the bull market.
In summary: For the time being the market remains in a clear bull trend. Yet, a number of longer-term indicators suggest the market might experience a substantial correction ahead. The market remains at extreme valuation levels and severely overbought on weekly charts. Plus, the "smart money" is positioning for some sort of a sell-off. Short-term, the market is back to being overbought. It appears that Elliott Wave analysis is suggesting the same.
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