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Midweek Cycles Update – March 9th
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Finishing Touches (Market Top)
Finishing Touches (Market Top)
In a classic example of the power of Short-covering, the S&P 500 has risen 190 points in just 16 sessions. Market valuations remain at historically extreme levels, so it’s not like the markets are cheap and investors are rushing in to buy value. The economic news remains uninspiring, and announcements continue to re-enforce a recessionary or low growth environment. So once the Short covering has run its course, the only catalyst for a continued rise in equities (back to 2,000 and above) would be the idea that the central bank will become more accommodative again. To some this is bullish behavior, for me, the market is putting in some Finishing Touches (Market Top).
In a case of bad-news-is-good-news for the markets, it’s clear that equity over-valuation exists because of FED policies. For several years, the FED has responded to bad economic news by increasing liquidity, and this has pushed asset prices higher. But the FED’s ability to safely provide liquidity is not unlimited, and it appears that the FED’s powerful accommodative policies have been exhausted for now, leaving asset prices vulnerable at current levels. Unless economic announcements become much more negative, forcing the FED steps back in with some sort of stimulus, the bear market in equities will almost certainly continue.
Since 2015’s broad topping pattern, equities have frequently moved sharply in both directions. The extreme nature of the moves makes predicting the day-to-day markets extremely difficult, which is why traders find it so difficult to profit in an environment like that we have today. In the short term, however, Daily Cycle timing and the market’s overbought status greatly favor a reversal and decline toward the next DCL.
The Financial Tap – S&P Daily Chart
There is clarity again in the S&P’s Investor Cycles, especially with a Three White Soldiers pattern in place. Three straight weeks of solid gains have lifted the S&P sharply to close back above the 26-week moving average. The current rally will draw the bulls back in and swing sentiment back to the bullish side, setting up another decline.
Since I believe that equities are well into a bear market, the recent strength should be seen as only counter-trend. We’ve had 2 significant Investor Cycle declines since August, and it appears that we still have some upside “filling” to do before the longer term bear market decline continues. The next step is a Daily Cycle Low decline, which should get bears excited before price launches in a new DC. I expect the new DC rally will push the S&P back above 2,000 and form the top for the current Investor Cycle.
If this scenario unfolds, I’d expect sentiment to once again become too bullish, at a time when the equities Cycle has the time and room to sell-off in a confined fashion. But this scenario is not a given – if the bear market is underway, greater-than-expected downside risk is always present and the bottom could fall out of the market at any time.
The Financial Tap – Weekly Chart
The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.
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Twists and Turns
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Midweek Cycles Update – March 2nd
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Crowded Markets
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Cycles Midweek Update – Feb 25th
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On a String
On a String
An excerpt from this past weekend report within the Equities section. Consider membership here: Financial Tap
In equities this week, it makes sense to focus purely on technical analysis. During the past few months, I’ve outlined the likelihood that equities are well into a bear market decline that should last for 3-5 Investor Cycles (12-18 months). At this point, I don’t believe it makes sense to rehash it again.
Last week’s report was titled “All On the Same Side” to illustrate just how one-sided the markets had become. Not surprising then, equities bounced after forming a failed Daily Cycle and becoming very oversold. Since the January 20th Daily Cycle Low (DCL) had already confirmed a failed Investor Cycle, the failure of a following Cycle (on Feb 11th) was not a surprise. The Cycle failure was simply an extension of an already-apparent larger degree correction. However, as with every asset class, equities are subject to ebbs and flows on shorter time-frames, so a Daily Half Cycle Low rally was expected (past 8 sessions).
I noted previously that a 2nd half rally might be sharp, but would fall just short of the high from day 8. It is too early to know if the half cycle rally is finished, but a final Daily Cycle should always form a lower high before it begins a final decent into a deep Cycle Low. Since the current DC has failed and is only on day 22, without a new high, we can only assume that the coming weeks will bring a sizable sell-off into DC and IC Lows.
We expected a sizable rally, but need to avoid allowing it to flip our thinking to the bullish side – the bear is still very much alive. More than anything, the current rally has allowed oversold technicals and bearish sentiment to reset themselves from extreme levels. In a downtrend, counter-trend moves like we’re seeing at present act as profit taking events before the decline continues.
In this case, the rally has allowed the market to reset to a position where a sell-off into a deeper, final ICL can begin. There is always the chance that a market will go against a well-defined Cycle picture by rallying prematurely without a clean final Daily Cycle low, but that’s the exception and not the rule. At present, it does not look good for the bulls, and the Cycle count does not support any type of bullish outcome. I expect that equities will decline into a mid-March ICL before being treated to a large, counter-trend rally.
One More Run
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All On The Same Side
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