Market Trek

with Brian Whitmer

  • Market Trek: “Magnificent 7” vs. “Magnificent 2”: Looking at You, ASML and LVMH

    Would you believe that over the past 15 years only two stocks in Europe’s blue-chip Stoxx50 index have driven 27% of the gains? The luxury giant Moet Hennesy Louis Vuitton (LVMH) and tech heavyweight ASML Holding NV (ASML) have dominated the European stock market. But how much longer? Watch Market Trek host Brian Whitmer as he gives you some Elliott wave-based answers.

    Hey guys, Brian here. Hope your week’s going great.

    We’ve all heard by now of the “Magnificent 7” stocks that are dominating the S&P in Europe. It’s not seven stocks. It’s really just two stocks that have been responsible for most of the gains.

    In this video, we’re going to look at these two stocks, because I think big changes are ahead. Stay with me.

    All right guys, welcome back. No scenery today. Video went a little long.

    The two stocks in question — LVMH and ASML — these two stocks account for 27% of the gains in the Stoxx50 since 2009. Two stocks out of 50, more than a quarter of the gains over 15 years. This is a concentrated market that we think is dangerous.

    Here is LVMH, the world’s largest luxury company, peaked nearly a year ago, textbook impulsive decline. The reason we’ve been so focused on this specific stock is because it dominates the luxury sector and because the luxury sector dominates many European indexes. I’ll just put up this chart for new subscribers that we showed last June.

    So eight months ago, this was just a couple months after the top and just as we completed that initial five down. We showed this long-term chart and we said, hey, this is a five-wave rise from 2008 and a reversal is likely.

    Now, as a wave analyst, I think this is the picture that should have been on the front page of every financial website. Of course, it’s not. What has made the headlines, if we go back to the near-term chart, the headlines are all about the luxury company snapping up properties on Fifth Avenue.

    In my view, the luxury mania is combining with a still-deflating mania in commercial real estate. None of these companies realize the trend has changed yet, and this is a dangerous environment for the bulls.

    Now here is ASML, Europe’s largest tech company. Makes all the photolithography equipment to produce semiconductors. Kind of looks to be about where the luxury sector was a year ago.

    The rise since ’09, fairly textbook five waves up. We have an extended fifth wave. This is a terminal wave pattern any way you look at it.

    We could see a few more new highs in five of five, but prices are bumping into resistance. In my opinion, not much upside left. And again, the bigger story here is how these two companies have come to utterly dominate the Stoxx50.

    So, food for thought here. I have a feeling I’m gonna be doing some updates on these two charts in the future. As always, subscription links below, if you want to follow our analysis in real time. And thanks for watching.

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  • The Cycle of Optimism: 2 Years Up, 2 Years Down?

    Hey guys, Brian here. I hope your week’s going great.

    There’s an interesting two-year cycle of peaks in optimism that’s been going on for about six years now. In this video, I’m gonna show you this cycle because, if it is still operative, we’re in a time window right now where we could see a big surge in negative sentiment. Stay with me.

    All right, guys, welcome back. Real quick, before we look at this cycle, let me just show you where I’ve been the last few weeks. I’ve been traveling around Hokkaido, in northern Japan, and this is the view coming down the ropeway of Mount Hakodate — very, very cool little city. I really loved it here.

    There’s some interesting financial history here, too. Hakodate was one of the first Japanese ports to open to international trade in 1854. There was a convention that ended Japan’s period of isolation. Hakodate that saw this, you know, influx of foreign traders, and it was a big historical event that really played a major role in modernizing Japan’s financial system.

    The other interesting thing is that Hakodate was the capital of Japan’s first attempt at a Republic — the Republic of Ezo. A group of Samurai rebelled, tried to set up a Western-style democracy. It lasted five months, and was overthrown in 1869. But for the time, it was a huge departure from feudal Japan and toward a modern governance system. So, super interesting place. Really glad I got a chance to visit.

    Let’s take a look at this cycle. Top graph here is the Dow, bottom graph is the VIX Implied Volatility Index. We have inverted this to align with stocks. So the top’s in the blue graph here. Our low VIX readings, which show high complacency, extreme optimism, right? Those readings align very well with peaks in the Dow. As they should, right?

    The cycle here is fairly clear, right? Every two years — 2018, 2020, 2022 — the inverted VIX, it hits a cycle high that coincides with a high in the Dow and that leads to some kind of selloff.

    So, I’m bringing this up now because this cycle is due to reverse again. The window was November to January. So, we’re on the tail end of that turn window.

    The cycle is especially compelling right now because of some other indexes that show what I’ll just call dangerous levels of optimism. This is one of them.

    Steve and Pete published this chart in the January Financial Forecast. (Subscription link’s below.) It’s the bullish percent in the weekly AAII poll — famous poll showing expectations of retail investors. So, this is not institutions. It’s mom and pop.

    Bullish percent just hit 61%. That’s the highest percentage since the first quarter of 2021. And that, if you remember, is when the mania in SPACs ended, when the IPO mania ended, when the mania in meme stocks reversed. That’s where we would have to go to find a time when mom and pop were more enthusiastic than they are today.

    The behavior of retail traders, it’s a contrary indicator, and their commitment to the market is extreme. And we think it’s going to change dramatically during the next wave of declines.

    Let me know what you think in the comments. Again, subscription links below, if you’d like to see more of this kind of analysis. And thanks for watching.

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    See what Elliott waves show for 50+ of the world’s biggest markets in our new Global Market Perspective.

  • Market Trek: We’re Watching This Stock Market Divergence, and So Should You

    Hey guys, Brian here. Hope your week is going great.

    Little market history lesson today. February 1966: that month marked the orthodox end of Cycle Wave 3 in the Dow. There was a divergence back then that helped analysts navigate that bear market.

    A similar divergence just popped up again today, and not many people know about it. So stay with me.

    All right guys, welcome back. Before we look at these charts, let me just show you where I was last month.

    This is the Nikko Toshogu Shrine. We’re in Nikko. This is about a two-hour train ride from Tokyo. The interesting thing, one interesting things, about Nikko is that a lot of Japanese firms hold their high level meetings and retreats here. It’s a really peaceful place. Thought to be good for strategic planning, decision making, team building.

    There’s also cool story about a secret hidden treasure somewhere in the shrine, gold and gems, samurai artifacts from the Edo Period. Treasure hunters, I’m told, have scoured the place, and the treasure is still out there. I certainly didn’t find it. So, best of luck to anyone else who visits. I really enjoyed Nikko. The whole area is just beautiful.

    But, let’s get back to this market model from ’66. All right, these graphs come from the latest issue of Global Market Perspective. (Subscription links below.)

    Top graph here is the nominal Dow. This is the Dow we see every day. Bottom graph is the Dow divided by the Producer Price Index. We call it the Inflation-Adjusted Dow. It’s essentially what stocks would look like in terms of the things that we all buy.

    These two peaks here are important. This is February 1966, end of cycle wave three. Here, the peak in the Dow coincided with a peak in the Inflation-Adjusted Dow.

    This is December ’68. Nominal prices almost match that prior peak. Inflation-adjusted prices are lagging here. This non-conformation leads to declines of 36%.

    And ultimately, if we extended this chart out through the early ’70s, the Dow rallied, but then it declined another 45% into December ’74.

    Let’s look at the same indexes today. Dow rallies to a new high on January 2. Inflation-Adjusted Index doesn’t make it, right? And neither do a lot of the broader indexes.

    There has been no new high in the Wilshire 5000, no new high in the New York Stock Exchange composite, no new high in the Russell 2000 or the Value Line Composite.

    So, just as in ’68, we think the enthusiasm has pushed a select few averages to new highs, but many more indexes are weak. We view this as a fractured market. It’s an unhealthy market, and ultimately, it’s a market that is vulnerable to significant decline.

    So, let me know what you think in the comments. Again, subscription links below, if you like this kind of analysis, if you’d like to subscribe to our newsletters. And thanks for watching.

    Is Bitcoin a “buy”? How about tech stocks? Gold? Oil? Indian stocks?

    See what Elliott waves show for 50+ of the world’s biggest markets in our new Global Market Perspective.

Brian Whitmer

Global Markets Strategist
Editor, European Financial Forecast

Brian Whitmer was a civil engineer in another life, so he’s got a good sense of how things are constructed. Applying that skill set, he deconstructs today’s sundry financial vehicles, like CDOs, meme stocks, subprime mortgages, SPACs, et al, and contextualizes them for his subscribers. He edits the monthly European Financial Forecast and contributes the European stock section of our monthly Global Market Perspective.

Brian’s also got a bit of wanderlust, so he gets a first-hand, boots-on-the-ground feel for what’s really going on around the world.

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