Video duration: 10min 56sec.
Mid-year market review transcript
Hi everyone, I’m Al Brooks. Today is June 29th, 2024. I’m on a working vacation at Lake Tahoe. I’m currently at the top of Heavenly Valley Ski Resort’s mountain. I have Lake Tahoe in the background. The reason why I’m recording this today is because a couple interesting things are happening in the market right now.
Yesterday, Friday, June 28th was the last day of the week. It was the last day of the month. It was the last day of the quarter and it’s the midpoint of the year. And that’s important. The past two years, the market sold off into October. Last year, the sell off began in July, the year before it began in January.
I don’t know that this is going to be the start of a sell off, but I do know that the market often reverses when it’s in the middle of some timeframe. For example, during the day, if you’re a day trader, the market often makes a reversal. Almost exactly at the middle of the day, there are 81 bars on the five minute chart of the Emini and it’s fairly common to get reversals right around bar 40, bar 41, bar 39, the midpoint of the day.
Midpoint of year
This is the midpoint of the year. The market has rallied throughout the year. And therefore, you have to be wondering, will we pull back into October like we did the past two years? And if we do pull back into October, I think we’re probably not going to get the kind of rally that we’ve had the past two years.
I think we’ll probably end up going mostly sideways. Now, on the daily chart, there’s a wedge pattern. On the weekly chart, there’s a wedge pattern. And on the monthly chart, there’s a wedge pattern. And so, we have a nested wedge set up, and that increases the chances that there’ll be some profit taking over the next couple of months.
And that would take us down into October. I’m going to show you some shots to explain exactly what I mean.
Emini monthly chart — strong bull trend
First is the Emini monthly chart, next the weekly chart, and then the daily chart. Monthly chart after the pandemic was in a very strong bull trend. It had a big pullback with lots of big bear bars along the way. And through here, it became bullish. And it appears that the odds favor a resumption of the bull trend.
When you listen to the pundits on television, they talk as if the market is going to go much higher from here. However, I have several concerns about this chart. We had a lot of selling through here, and now we have three legs up. One, two, and three. So a leg up, a pullback. A leg up, a pullback. When the market starts having pullbacks, and you have a third leg up, It increases the chance that you’ll have a pullback, and if you do, the pullback will probably have two or more legs.
And to have two or more legs, it’ll have to last at least three bars or three months. We have an obvious breakout point here. When markets break out, they tend to come back and test breakout points. We tested it in April. However, this is a bad buy signal bar. We have a strong rally here. And then we have a bear bar, and if the market goes above a bear bar in a bull trend, it usually does not go far above before it pulls back.
Look what happened here. An extremely strong bull trend, and then a bear bar that looks very much like this bear bar. The market went up for a few months, and then we did that. I don’t think we’re going to do this. But I do think we’re going to sell off into October. October is several months away, so I think we’ll pull back for at least a few months.
And how far down will we go? Well, the minimum target would be the bottom of the wedge. So we have a breakout of a trading range. This is trading range behavior. And the bulls are hoping that we go a lot higher. But I think that we’re probably going to turn down in July. And then work down into October. I want to show you a couple of things here.
After the pandemic, we sold off in January of 2022 and reversed up strongly in October. Last year, we sold off in July and reversed up in October. I think this year we’ll try to copy the same pattern. The market tends to do the same thing repeatedly. However, if it’s doing it a third time, it usually ends up being different from the first two.
So a big sell off into October, big rally. Big sell off into October, big rally. Big sell off into October, I think we’re probably not going to have a big rally. I think we’ll probably go sideways for many months, sideways to down. So monthly chart, we have three legs up, one pullback, two pullback, three.
We’re at the top of a channel, pretty much a parallel. To the line drawn below, and we’re trying to successfully break above a key price. If we reversed down a second time, that would be a second reversal down above a breakout point. That also is another reason why we might pull back.
Emini weekly chart — strong rally
I want to go to the weekly chart next. And weekly chart, we had a strong rally, a very big sell off, a strong rally, a very big sell off. And now we have a third leg up and we’re around the top of a wedge and we are definitely at the top of a channel. The bottom of the channel would be a target. Here’s a 20 bar exponential moving average. That would be a target.
And the breakout point would be a target. None of those requires much of a pullback, maybe a 5 percent pullback. But if we break below the bottom of the wedge, if we break below the bull trendline, then we start talking about testing the low of the final leg up and the 5,000 big round number. That would be about a 10 percent correction.
So a wedge rally on the weekly chart, in addition to the monthly chart,
Emini daily chart — parabolic wedge rally
And then on the daily chart, we have a parabolic wedge rally. Three legs up, we went up, we paused, we went up, we paused, we went up, we paused. We tried to reverse down here, but we went to a new high. Half the time, if you have a wedge rally, here, parabolic wedge, three pushes up on a tight bull channel.
Half the time, the market’s going to go above the high of the wedge and then reverse down. And that’s what Friday tried to do. We may go sideways more, maybe form a double bottom, maybe form a head and shoulders top bear flag. But right now, I think there’s a 50-50 chance that we’ve begun the correction.
I think there’s probably a 60 percent chance we’re going to reverse down before we go much higher. So will we get above 6,000 and then pull back? Right now? I think there’s a 60 percent chance we will not. And I think there’s a 50 percent chance that the reversal down has begun with Friday’s close, June 28th. And again, that’s the midpoint of the year.
Targets below are breakout points. We broke out about that. We broke out about that. So those would be targets. And then also the market tends to come down to the start of a wedge, which would be down here, 5300. Then we’re back into a potential trading range. The target would be here. The April low, which is around 5,000, and that would be about a 10 percent correction.
Will we get down here? Uh, I don’t know. Right now, I think if this is the start of the correction, I think we’ll probably fall further down than what people think. So, for example, I think we’ll probably come down here, maybe 5,000.
One more point on monthly chart
I want to say one other thing about the monthly chart. We have a breakout here, the post pandemic high, and then we have a second breakout here.
Here’s a breakout. A breakout is just one or more big bull bars closing on their highs, closing above the high of the prior bar, and often closing above a prior high. So we broke above this high, we broke above that high. When the market reverses, it tends to dip below breakout points. So that high and that high.
So I think this would be a target, which is below 5,000. Again, I think there’s a 50-50 chance that we’re putting in the top for the next several months, and that will fall 10%, maybe more, but 50-50 chance means 50 percent chance we go higher.
One more thing about the daily chart
I want to say one other thing about the daily chart. All through here and all through here, we kept getting reversals.
My buddies keep asking me, Al, is is the start of a major correction? 10%, 20%? And I keep saying, any time you get a reversal in a bull trend, 60 percent chance, even if it’s a perfect reversal, 60 percent chance, you’re going to go higher. So every one of these reversal attempts all the way up, I kept telling my friends, we’re probably going higher, 60 percent chance we’re going higher.
This time is different
This is different. We have a wedge on the daily, weekly, and monthly charts. And we’re at a time of the year when there’s an increased chance of a reversal. So I think it’s more like 50 percent chance we’re going to keep going up and 50 percent chance, either this is going to be the high or go a little bit higher and then we’ll start to work down.
And I think a reasonable target would be 10%, which would be about 5,000 and we may go lower.
Closing comments
Again, this is Al Brooks. I’m on a working vacation at Lake Tahoe. The reason I’m posting this is because I think something interesting is going on. And I want to say one other thing about corrections. You really don’t know if the market has corrected until it has gone down very far, usually 10 percent or more, and there’ll be a whole bunch of buyers at 10 percent down a whole bunch of buyers at 20 percent down.
So it’s really difficult to short bull trends, especially bull trends that are strong like this. However, I do think traders are going to start to take profits because of what I said, the calendar, and because of the wedges on all three timeframes.
US presidential debate impact
I want to make one other point about why I think the market may be going sideways to down into the election or even later.
And that’s the debate that we had on Thursday night, June 27th. I thought both candidates were horrible. And I think that’ll be the general consensus of The American public, and that will generate fear and confusion and people will become more cautious. That will add to the number of people looking to take some profits.
It will also make people less willing to take risk, which would put a damper on the stock market.
Again, this is Al Brooks from Lake Tahoe. I hope you found this video useful. Thank you for watching.
