Deja Vu All Over Again?
In 2018, the Nasdaq 100 (NDX) led the other indexes to ALL TIME HIGHS. In 2019, the NDX is leading the other indexes to NEW ALL TIME HIGHS.
Nearly the entire gain in the NDX through its highs in October of last year was concentrated in just 4 stocks. Dubbed the “Four Horsemen”, these behemoths comprise 25% of the value of the entire Nasdaq. The Four Horsemen are Apple, Amazon, Google, and Microsoft. Each of these is between $850 Billion and $900 Billion in market capitalization. “The Four Horsemen Of the Nasdaq Collapse”. (https://markonomics101.com/2018/08/23/tipping-point-part-2-the-four-horsemen-of-the-nasdaq-collapse/).
The Four Horsemen together are currently valued at a bit more than $3.5 Trillion. These 4 companies total 12% of the Wilshire 5000, which accounts for all stocks on all US exchanges.
The importance of the Four Horsemen cannot be understated. No rally or decline is likely to get very far without their participation.
Below is a Slide Show of the charts of the Horsemen. The key takeaways are the following:
- All four companies have completed ROUNDED BOTTOM patterns and broken ABOVE resistance. All of their Chart Patterns are unequivocally BULLISH.
- So far, Microsoft was the first to make NEW ALL TIME HIGHS. However, AAPL, GOOGL, and AMZN will, in all likelihood, at least challenge, if not exceed their ALL TIME HIGHS.
Equity Indexes Poised To Make IMMINENT New Highs
The ROUNDED BOTTOM pattern, which we have featured over the last couple months, is possibly the MOST RELIABLE Chart Pattern. Ten days ago, the charts of the Horsemen suggested that a BIG rally was ahead. “Dow 30K? Yes, but…”. (https://markonomics101.com/2019/03/04/dow-30k-yes-but/).
In early February, ROUNDED BOTTOMS characterized the bulk of Chipmakers and suggested the mini-BEAR of the 4th Quarter was over. “Chipmakers Poised to Lead Nasdaq Higher”. (https://markonomics101.com/2019/02/06/chipmakers-poised-to-lead-nasdaq-higher-chart-of-the-day-13/).
Some of the key equity indexes are presented below in our second Slide Show. The key takeaways are the following:
- The NDX and Standard & Poor’s 500 have already completed ROUNDED BOTTOMS, suggesting IMMINENT NEW ALL TIME HIGHS.
- The Dow Jones Industrials and Russell 2000 ought to complete their ROUNDED BOTTOMS shortly and then make NEW ALL TIME HIGHS.
Can We Guesstimate Upside Targets?
It is impossible to be all that precise in forecasting either the timing or level of the next major market peak. However, there are very useful “Rules of Thumb”.
ROUNDED BOTTOMS tend to be symmetric. Once the pattern is completed, the “expectation” is for the index or stock to advance the same distance ABOVE the resistance line as from the lows TO the resistance line.
Here’s an example: The Dow touched 21,750 at its Christmas lows. The Resistance Line is at 26,250 or 4500 points from the absolute lows. Once it breaks the Resistance Line, the expectation would be for an additional gain of 4500 points. That creates a “upside target” of 30,750 (26,250 + 4500). Dow 30K!
The Nasdaq 100 bottomed at 5900 and formed resistance at 7200. The differential, 1300 points (7200 – 5900), creates an upside target of 8500 (7200 + 1300).
The same math applied to the Russell 2000 and S & P 500 produces targets of 1925 and 3200 respectively. Keep in mind, these “targets” may not materialize, or could be vastly EXCEEDED.
In similar fashion, the TIMING between the valleys to breaking the resistance lines should also be somewhat symmetrical to the timing from breaking the resistance lines to the peaks. Three months have elapsed since the Christmas Eve lows. If we “guesstimate” that the rallies to new highs from here will ALSO take 3 months, that would suggest that the market could continue to rally into June or July. Keep in mind that these are just guesstimates. They are NOT to be relied upon.
The markets will rally until they form topping patterns. This may occur earlier or MUCH later than the 3 month guesstimate.
The 3 Ponies or Emerging Horsemen
While not qualifying for true Horsemen status, there are 3 more major NDX companies whose market capitalization exceeds $200 Billion. Facebook is just below $500 Billion, while Cisco and Intel each sport a value of approximately $250 Billion. Taken together, the 3 Ponies are worth a cool $1 Trillion.
If all 7 stocks are considered, they comprise nearly 1/3rd of the Nasdaq and 15% of all stocks. Cisco is already at new ALL TIME HIGHS. Intel is within a couple percent and Facebook is still completing a “Cup and Handle”, a variant of the ROUNDED BOTTOM. The Nasdaq is completely in gear.
Trades, Not Investments
It’s critically important to re-iterate that none of these issues or markets are currently under-valued in price! The ROUNDED BOTTOM pattern is a terrific, low risk indication of a profitable short term trade setup. It IS NOT necessarily indicative of a good long term INVESTMENT.
Another important consideration is that the “news” is USELESS. The “fundamentals” are often USELESS. What is important is how a market REACTS to news. A perfect example is chipmaker Micron Technologies, which reported earnings yesterday after the market close. Micron’s revenues FELL 20% year over year, yet the stock “beat estimates”. In today’s trading, Micron is up nearly 10%, despite these horrendous revenues and earnings. This is a key characteristic of BULL MARKETS. Good news is Good news. Bad news is Good news. No news is Good news.
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