*Smart money refers to capital controlled by institutional investor like the big banks, central banks and large funds.
After the Great Recession which happen in 2008-2009 period, the Dow Jones Industrial begin to form the wave ((1)) of the cycle phase from 2009-2011. The late 2011 period is the beginning of the strongest motive wave where by wave ((3)) was extended. The first part of the impulse move of wave ((3)) was from late 2011-2016. Follow by 2016 to early 2018.
Things start to change after October 2018 which we saw a decline after wave ((5)) and although 2019 saw the Dow breaking higher high despite the risk of an ongoing heated trade war, the Dow begin to break newer higher on October 2019 and the bullish move lasted till February 2020.
Looking closer, the 2019 bullish upside was a corrective wave rather than an impulse, thus forming an expanded flat (Figure 1b). To add on, the wave II of the supercycle phase has also reject the 50% Fibonacci level of wave I. Which is considered a golden ration of wave 2. In another words, should 29,000 breaks, we will witness the return of the bullish 3rd wave of the supercycle phase which is one of the strongest waves.
The expectation of an expanded flat indicated on our last report on 29th June is likely not to happen as the recent bullish momentum seems to be gaining momentum, especially after it briefly break above 28,000. A key psychological level which indicate a renewed strength of the bull.
As such, we are optimistic that the resistance zone highlighted will be our near-term target.
However, should the resistance fail to break, the double three corrective waves still stand. (Refer to our report dated 29th June 2020 for the double three corrective wave explanation)
The smart money flow index has indicated a stronger and sharper inflow for the first time after it broke the crucial level highlighted in blue. Additionally, the rate of change has turned positive for the first time, hinting of smart money returning back to the market.
The sharp upside can be seen fast approaching the key resistance level and should the smart money break the resistance, we will be seeing a more aggressive inflow of the smart money.
*The value on the y-axis is describing the % percentage rate of change.
The change of tide from bearish to bullish are indicated by two factors. The first factor is that price remain strongly supported above the resistance turned support zone at 25,230.99-24,681.01. The second factor is Dow has broken above the 28,000 level and the formation of the golden cross further conclude the recent bullish up move.
Moving forward, the smaller bullish pennant formation indicate that the probability of Dow continuing its upside is strong. Should Dow break the 88.6% Fibonacci retracement level of wave (II) and subsequently the high in February at 29,568.57, the 3rd wave of the primary phase target at 33,389.33 will be met.
Like the Dow Jones Industrial Average, the S&P 500 leads the rally ahead of Dow and the resistance zone gap has been invalidated with the S&P 500 a few ticks away from breaking the all-time high in February 2020.
Once the S&P 500 breaks the high, we can expect the bullish rally to resume. Continuing the wave 3 of the primary phase and the long-term target will be at 4,000.
Nasdaq Composite continue to rally above the all-time high since February sparks an extended 3rd wave and with the recent breaks above the bullish flag, Nasdaq found itself vying for the top spot again. Despite a potential double top formation, Nasdaq will continue to test the high at 11,500. Only if the index stays supported above 10,645-11,000 region.
With Nasdaq continue to trend above the uptrend line and the 50, 200-day moving average, the index’s bullish sentiment remains.
Cisco System had a strong chance of reaching a new high at US$50.33 especially after it briefly broke out of the pennant, which coincidentally is the handle of the cup and handle formation indicated in our report on 3rd August
The failure to clear above the resistance zone highlighted in the chart increase the bearish opportunity and it had since gap down strongly below the support and the 200-day moving average, invalidating the potential bullish upside.
Moving forward, the next level to be tested is the support zone at US38.70-US$40.29.
Although NetEase has broken out of the bullish flag formation, the stock faces tough resistance at US$487.00 and therefore, the stock will likely correct further to US$440.00 before staging a stronger rebound.
As long as the stock stays elevated above the support zone at US$433.44-US$428.13, the bullish upside remains.
Tesla had a good bullish run after the stock has been consolidating below US1,500 for two weeks and the potential double bottom at support zone 1 rallied with a strong bullish candle and subsequently breaking the bullish flag. Additionally, the wave IV of the cycle phase had a much shallow retracement as compared to wave II. In another words, the Elliott rule of alternation applies over here. Where by one of the corrective waves have complicated and deeper correction while the other will have a much simpler and shallow correction.
The only challenges Tesla faces is breaking the resistance level of US$1689.00. Breaking it will further the probability of Tesla reaching US$2,000 target price.
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