NASDAQ 100, R3K, R2K, Bonds, Gold, Bitcoin - 2 look nice, 2 look ugly, and 2 are on the edge

There is always a bull market somewhere. And a bear market. And a trendless one. The good, the bad and the ugly. It is no different today. Technical analysis of three US stock markets, the US bond market, gold, and bitcoin, alongside applying Elliot Wave theory, yields precisely this.

So what

There are two assets/markets with very bullish chart patterns - asset classes I do not particularly like but have to admit...

One market with a bullish overall setting is on the edge. Bear market forces threaten to overtake the nascent bull.

One market with a bearish overall setting looks poised for a short-term counter-move-up.

And there are two markets whose charts look so ugly that a short-term bottom may be near, and an oversold rally seems imminent.

NASDAQ 100

NASDAQ 100 is on the edge. The overall bullish count, which we have favored for a few months, is still valid. The preferred count still goes like this (and so far, we have been right with the count)

1. Initial Rally (Potential Wave 1): The move from November '22 to around the end of February '23 seems to be a clear, impulsive wave, which could be labeled Wave 1.

2. First Correction (Potential Wave 2): After the initial rally, there's a clear corrective phase that ends around mid-March '23. This could be labeled as Wave 2.

3. Longest Rally (Potential Wave 3): Following the Wave 2 correction, there's a significant move upward until the peak around the end of July '23. This is the most extended wave and can be labeled as Wave 3.

4. Complex Correction (Potential Wave 4): After the peak in July, there's a sideway move with a clear downward trend, characterized by the overlap of prices, that seems to last until late October. This appears to be a complex corrective wave, which might fit a potential a-b-c-d-e structure, and it can be labeled as Wave 4.

Support 1: 13.750

Support 2: 12.880 (this level must hold for the bull count to be valid)

According to the Elliott Wave principle, one of the fundamental rules is that Wave 4 cannot overlap with the price territory of Wave 1. This means that the retracement during Wave 4 should not move below the peak of Wave 1. If it does, it violates this rule, and the bullish Elliott Wave count would be invalidated.

Russel 3000 and Russel 2000

R3K, and with it, 96 % of the investable US stock market looks like it is in a bear market and not a bull market. Why? The move down from the 2021 highs has a 5-leg impulse wave structure, the move up until summer 2023 has a 3-wave corrective wave structure, and the current move down has a 5-wave structure again.

A new first bear market leg may just have been completed, and a corrective second wave up may follow until year-end.

The bottom 2000 small-cap stocks that form the R2K look even worse (ugly). We can clearly see a 5-wave move down from the highs in 2021 until June 2022. An a-b-c-d-e corrective wave followed until autumn 2023. It seems as if a new 5-wave down has started, which should lead up to the lows recorded in spring 2020 (Great Virus Crisis). In Elliot Wave Theory, an a-b-c-d-e corrective pattern (here up) is usually followed by the final move in the direction of the larger trend (here down)!

This would fit nicely with the macro backdrop - a slowing economy and the effects of the tight monetary policy and the higher interest rates taking effect.

Bitcoin

Bitcoin and gold exhibit bullish chart patterns. This may be indicative of fear trades. This may be indicative of a Bitcoin ETF coming live. This may also be a leading indicator for declining interest rates and an end to the restrictive monetary policy.

We expect Bitcoin to retrace either 38.2 %, 50 %, or even 61.8 % of the move down now. This would lead Bitcoin to a top between 48.000, 41.750, or (quite unlikely) at the current levels.

Some simple mechanical trading systems have yielded quite good results over the past 5 years. Please note that these are paper trading results from backward testing exercises.

We will provide a newsletter dealing with trading signals soon.

Gold

The chart below shows the Physical Gold ETF, quite a good proxy for gold.

There is a long-term upward trend. The 200-day MA provides support. Three failed attempts have been made to break out a bit above the 2000 USD level. A fourth one is currently building up. It may be successful this time.

Bonds

Bonds look as ugly as the R2K. But in contrast to the R2K, a long-term bottom may be in sight at current levels. The chart below is the TLT ETF. We can see the regime shift since yields bottomed during the GVC. There has been a 5-leg impulse wave, which may just be finishing at levels that have provided support numerous times in the past 20 years.

Looking at the recent price action, October 23 may have been a pivotal day already signaling a trend reversal.

A move above the highs from last week would confirm that a bottom may be in place. The results of the FOMC meeting will provide direction this week.

Actionable Trading Advice

Stock Markets

NASDAQ 100

We like to sell puts at current levels (strike prices) and support levels 1 and 2 (strike prices) detailed above.

R3K/SP500

We like to sell puts because we enter a bullish seasonal period and think a counter-trend rally may be coming. This is a small trading position only.

R2K

The same strategy as detailed for the R3K index applies. We do not like the chart pattern and would keep the position very small.

Bond Markets

TLT

We like to sell puts at/out of the money as an initial position (see indicated support levels for potential strike prices)

Upon confirmation that the trend has been broken, a second position may be entered. This may be buying calls or selling puts deeper in the money.

Gold

We like to sell cash-covered puts of gold mining stocks or buy in-the-money calls. We like Newmont Mining, Barrick Gold

Bitcoin

We like to sell puts of Bitcoin miners such as Hut 8, Riot Platforms, Marathon Digital Holdings, or from a Bitcoin-related company such as Microstrategy. We always avoid Coinbase - for legal risks purely.