The Daily Drip

Markets review, strategy and analysis

Feb 29, 2024

Note: The EW counts on the right edge are real-time, and they are prone to adjustments as price action develops. Elliott Wave has a fluid approach, is evidence-based, and requires constant monitoring of certain thresholds.

In the counts below, this (( )) = circle on chart

Chart of the Day QQQ:SPY ratio - Since Jan 24th, the tech-heavy Nasdaq100 has been losing ground in favor of the SP500. Will the trendline hold and tech will start to outperform again, or are we already in a more balanced regime?

SP500

Markets are really quiet ahead of tomorrow's Fed-preferred PCE data ( inflation that excludes food and energy). The trends remain intact with almost no evidence of abating. 5045 is the level to be watched on a closing basis. 5000 just below that is the 20day trend MA. If these come under pressure over the next several days, one can consider a change in character and expect a corrective period to unfold.

Here are the three charts depicting the RSP, SPY and XVG. Keeping a close eye on the value line geometric index XVG for a potential breakout. That is the average stock in US. A break here would suggest a much healthier and larger participation. The equal weight RSP has already done it, and it looks to continue gathering strength. Back below 158 would carry us into correction territory.

I wanted to show you this chart of new 52-week highs and lows in the Sp500. We are now about 80 days into this regime of almost nonexistent lows and a constant level of new highs. Just to put things into perspective, during 2020 and 2021 we went aproximately 416 days without making a new lows. This is also the longest period since the bottom in October 2022. We have had rallies like the one last year in spring-summer, but it was not nearly as clean as this one is. It is tough to continue to make bearish arguments until we see at least some level of deterioration here.

I like to monitor a simple ratio. That of discretionary vs staples. Offense vs defense in red below. It is presented on an equal-weighted basis which is the proper way to do it by eliminating the large caps stocks that can distort it. It continues to trend higher.

Nasdaq100

Nasdaq dropped 1/2 of a percent today on very light volume. It has actually been declining for the past 4 days ( volume, that is). We can’t read much into this until we see support levels getting taken out. 17,680 is the one to watch nearby. We have a visible loss of momentum, but the price needs to confirm it by taking out levels. Until then, it could simply be a “gather steam” type of action.

For comparison, take a look at QQQE - equal weight. Looking better. AAPL and GOOGL underperformance leaving marks on the cap weighted index.

RUSSELL 2000

IWM dropped a bit but insignificant. Price holding above those upward-sloping moving averages is a good indicator of momentum buildup. Needs to break above 205, and once it does, it can really start accelerating. It has quite a bit to do with rates. Any Fed cuts will likely help this area of the market a great deal.

Here are mid-caps for comparison. Notice how the trend is trying to pick up.

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Dow30

Check out that touch and bounce of the 20day. These are momentum-type accounts that buy no questions asked on any test of that indicator. The bottom line on something like this goes: the trend is up until it isn’t. They don’t make it any more complicated than that.

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US Dollar and Yields

The dollar is not really in focus at the moment. Its price action is muted and does not provide good visibility. I will say that it has stopped trending up and broken the uptrend since last year. If it manages to crack and close below 103.50, I would take it as a signal positive for risk assets. 102.80 would be the next target. PCE tomorrow might have something to say on this, so hold tight.

10-year yields are coiled below 4.3%. A strong PCE tomorrow would break that level to the upside a create a risk event. If in line or lower, I would not be surprised to see yields at 4.1%.

Gold and Silver

Gold is tight. Very tight. Converging price action and flat MACD. Basically non-trending. But from this come explosive moves. I will not guess which way it will be, but rest assured, once we see it break, one must jump on the train and let it ride. It could try a shakeup first. We will see. I have my eyes on it daily, and I will bring it to your attention once it warrants commentary.

Silver is just above massive support and has been sitting here since mid-January with some false starts. Targeting the top of the range near 24.50 with stops below 22 is a trade idea.

Bitcoin

Since I am displaying weekly charts, here is the main one I follow in Bitcoin. It speaks for itself; it just needs time to play out.

This is why one cannot make wave-top assumptions in strong trends and why I said no reason to get cute with it as it has good momentum. BTC touched way past my 60k mentions, hitting almost 64k. A 1,2 1,2 is a very powerful count and leads to explosive action. Notice how we broke above the top of the channel, another sign that we are currently in a wave 3 setup.

A shorter-term market might listen to a wave ((i)) formation, or it might not. The labels presented are suggestions as per the EW principle. The reality of trends could be very different. All I am saying is, let’s give the market the benefit of the doubt and let it breathe as it wants to. Once it’s ready to start some levels of correction, I think it will become apparent. It has not yet.

Are the “laser eyes” back or has the crypto community learned its sentiment lesson?