Notes have not been following the seasonal and dynamic cycle

[...] I think that this section is the more important part of the cycles message now.

Notes have not been following the seasonal and dynamic cycles as well as notes have notes have in the past. When this occurs, one must ask the question as to whether a longer-term and stronger cycle is counteracting the short-term cycles. The current bond market bull began in 1981. I recall that the technical group at Smith Barney reckoned that the longest bull markets in bonds ran 35 to 36 years. 1981+35=2016. And, given that next year is a year ending in a 7, I expect a crisis. The areas that benefited the most from the excessive generation of credit are the areas that are most likely to decline the most when investors realize that the bond market is overvalued and that they are overweighted. As my friend on the trading desk in London told me, rules and regulations combined with reductions in the trading desks at the banks have greatly reduced the volume of bonds that can be liquidated quickly and easily. The entrance was large but the exit has been shrunk. Thus, the bond market appears very risky from a longer-term perspective.

Stock market action confirms this view. The rate-sensitive utility sector has fallen from the top relative ranking to the bottom. Meanwhile, banks, which are the beneficiary of higher rates, bottomed in July and have been outperforming since.

Very short-term, notes have made a lower low, but momentum has not, a bullish divergence [...]

Notes Wave Cycle

Notes Annual Cycle

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.