Thursday, January 28, 2021

US Major Indices Price Action Trend Cycle Are Maturing, A Major Correction Could follow

The charts of US Major Indices are showing the narrative that their respective Price Action Trend Cycle are maturing at the same time. 

Both the S&P 500 & Nasdaq-100 are currently trading at the upper band of the Bollinger with the S&P 500 trading at 15% premium to its 200-MA while Nasdaq-100 is trading at 20% premium to its 200-MA.

Since 1997, the S&P500 has traded at a 15% premium to its 200-day MA on 14 occasions with a subsequent average drawback of -0.9% from these levels.

As for Nasdaq-100, it currently trades at the upper band of the Bollinger and 20% premium to its 200-day MA. This is the 18th time the Nasdaq 100 has traded under these conditions with subsequent average pull-back of -0.95% after reaching these levels. 

We at the stage of the financial market where the market’s most aggressive energy has gone racing toward “pre-profit” growth companies, long-shot emerging growth and massive SPACs listing and acquisition spree.

Stock like Gamestop or a Plug has been dramatically surging within a one-month period with momentum investors chasing on them.

Such a euphoria bears a resemblance to that of the 90’s dotcom bubble where this sort of thing kept rolling until the Nasdaq doubled in less than a year and a few-hundred IPOs hit the market before an inevitable correction.

Nobody knows when the market is going into a meltdown. However, the ingredients of a significant correction are in place. 

The charting model used has been spot on many occasions and there is reason to believe that a correction is impending. 

Figure 1: S&P 500 Valuation

Figure 2: What type of bubble are we in 

Figure 3: Dow Jones’s Price Action Trend Cycle Is Maturing

Figure 4: S&P 500 ‘s Price Action Trend Cycle is Maturing

Figure 5: Nasdaq-100 ‘s Price Action Trend Cycle is Maturing

All posts and charts are for educational and illustration purposes only

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