Notes are in a most interesting time of the year

Equity Market Analysis

In May, the S&P hit a high and then quickly pulled back because there were a number of divergences. One can say the same now. Here are some observations that tell us that the current market conditions may create some short-term consolidation over the next 1-2 weeks, but that the uptrend is intact.

 

• There have been 5 times in history the S&P was up this much and at a new high, with up volume making up such a low percentage of total volume. All cases led to lower prices 2 weeks later.

• Last week, the S&P suffered a sudden drop in a low volatility period. The index tended to be lower 2 weeks later. After 3 months, the S&P had rallied 20 out of 25 times.

• The latest S&P new high occurred on a day when both breadth and volume were negative. That is, there were more declining than advancing stocks. And, declining volume actually exceeded advancing volume. Such past instances led to more consolidation over the coming weeks.

• There has been dispersion sell signals. A high percentage of stocks are hitting new highs and new lows simultaneously. Indeed, this dispersion phenomena was written about by Norman Fosback in Stock Market Logic. This is the basis for the Hindenburg and Titanic Syndrome indicators. Given the percentage of stocks hitting new highs, the number of new lows last week was nearly 4 standard deviations from the norm. This is similar to the condition prior to the May 17 drop. All of the above are short-term considerations. The cycles still are supportive of higher prices.

 

Bonds:

Notes are in a most interesting time of the year in which there are usually some excellent trading opportunities. There have been more turning points in the month of June than in any other month, most of these turning points have been lows (using a 10% filtered wave, 22% of all lows since 1982 have been in June). Almost all of them occurred between June 12 and June 18.

The note market bottomed on the May 24th turning point. The current rally is likely to persist to June 2nd. It will be a short into the 9th. It will also be a short from the 14th through the 21st.

 

This is an excerpt from the monthly Cycles Research Early Warning Service, a monthly e-mail report that analyzes the trends in the US stock market, the bond market, and the gold market. There are stock and ETF recommendations and high-probability S&P turning points.
Cycles Research Early Warning Service has been ranked the top stock market timing service for 2016 by Timer Digest, an independent rating service in Ct., USA.