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Tuesday, June 13, 2023

Seeing an, "oh sh*t", moment in the charts

 Yesterday was an interesting session, as we saw the $INDU (Dow Jones Industrial Average) run back up to precisely the 34k level/target (close to the top of the range...). I didn't notice that until after the closing bell, because I was busy struggling with my monitor setting, after recently upgrading windows to version 10 - but in hindsight that Dow target helped lift big tech even higher. I say, "even higher", because - as you probably know - big tech has been on a tear since early May. 

Small Caps 

Recently I blogged about what this fake "bull market" rally could mean for your 401k, and yesterday I decided to put my money where my mouth is, and pull the wife's 401k out of small caps. A fund called the Franklin Small Cap Value Fund USMF 

$IWM (The Russell 2000 ETF). This isn't the small cap fund I've been hiding in... although the one I was in has also has traded into a bearish H&S pattern - the same one I pointed to in last week's newsletter.

But there's another thing I don't like about these small caps and that's the Fibonacci (retracement) target we're seeing on the chart. 

For comparison 

$FRCSX Franklin Small Cap Value Fund USMF - Same Golden Mean Fibonacci target 

Of course it could be that I got out too soon, or that we see the highs retested several more times over the next few months, but I'd rather take profits, and brace for the worst. 

Speaking of bracing for things. 

Fake News insinuates that Trump supporters may become violent again, as they (the lame stream media) continues to try to influence another election. 

Notice (always proud) Bloomberg, at the top of the list...

$SPX - futures testing the 4400 level 

Even number targets; we've seen this before, and it usually doesn't work out too well. Reminds me of the Dow topping out at precisely 37k, at the end of 2021. 

Speaking of the Dow 


As I revealed on a Dow chart, after yesterday's close:

We are trading near the top of the pattern we've been trading in for the past several months, in what I believe is a wave "D". Wave D can be hard to predict, and can even overshoot the target. The pattern could even turn out to be a broadening (expanding higher) triangle pattern. But one thing is for certain, only a fool would mistake this for a powerful wave "3".  Compare the charts in the above Tweet, and decide for yourself. 

Looking back at the October rally 

The October rally was led by the Dow, in a very powerful impulse wave (labeled Primary Wave (A), and ever since then all we've done is consolidate in a range which I've labeled as a wave (B) triangle
pattern on the chart below.   

$INDU - 1. The Dow rally's precisely 6000 points off the Oct low (another round number target). 2. continues to trade into a downturned megaphone (aka triangle) pattern. Also see the declining buying volume on the chart.


The Dow chart is very similar to what we've seen in Chinese markets, which also lead the rally at the end of 2022, and now you see it leading the way down.


 China actually leads tech, but today tech has diverged just as it did in March 2022 

 I'm planning to take some time off - from trading - this summer, but if we could see a violent correction into the lower end of the pattern, before the 4th of July holiday, I would then be looking forward to a low volume summer rally.   

Of course I could b e wrong, and the market could simply continue to be held up on low summer volume, and then I would be looking for an August swoon (crash), but something like that is way less predictable.   

Good Luck, AA 

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