Weekly Stock Market Update & Forecast – Feb. 3rd, 2017

State of the Market Address:

  • The Dow ended the week above 20K - flat for the week.
  • Shiller's Adjusted S&P P/E ratio jremains at 28.5. Arguably the second highest level in history (if we adjust for 2000 distortions) and right behind 1929 top at 29.55.
  • Weekly RSI at 72 - severely overbought. Daily RSI is at 61.32 - neutral.
  • Prior years corrections terminated at around 200 day moving average. Located at around 17,100 today (on weekly).
  • Weekly stochastics remain at 96. Extremely overbought level associated with prior market peaks. Daily at 60 - neutral.
  • VIX/VXX either at or approaching their historic lows. Commercial VIX long interest approaching record highs. Now at 9X net long.
  • Last week's CTO Reports suggest that commercials (smart money) are shifting their positioning to net short.  For instance, the Dow is 4.5X, the S&P is at 2X and the Nasdaq is at 4X short. That is a significant short position against the market.

Elliott Wave Update:

Since many people have asked, I will attempt to give you my interpretation of Elliott Wave and how it is playing out in the market. First, I must admit. I don’t claim to be an EW expert, but I hope my “standard” interpretation is of help.

Let’s take a look at the most likely recent count on the S&P.

Explanation:

Long-Term: It appears the S&P is quickly approaching the termination point of its (5) wave up off of 2009 bottom. If true,we should see a massive sell-off later this year.

Short-Term: It appears the S&P is in process of completing intermediary wave 3. As soon as it does, the market should correct in an intermediary wave 4. Then push higher, perhaps to a new all time high in wave 5 of (5). If true, this count should terminate the bull market.

In summary: For the time being the market remains in a clear bull trend. Yet, a number of longer-term indicators suggest the market might experience a substantial correction ahead. The market remains at extreme valuation levels and severely overbought on weekly charts. Plus, the "smart money" is positioning for some sort of a sell-off. Short-term, the market is back to being overbought. It appears that Elliott Wave analysis is suggesting the same.

If you would like to find out exactly what happens next based on our Timing and Mathematical work, please Click Here. 


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