As readers know, cycles point to a decline beginning in July or August. Not all of the technical measures are in agreement. The NYSE breadth line remains strong. However, the NASDAQ advance-decline line has not made a new high, the NASDAQ index appears bearish, and sentiment is at hyper-optimistic levels. In order to protect profits, I sold the exposed positions while they are still at profitable levels. I am maintaining the buy signal for now because the S&P may very well extend its rally into August, but I doubt that. I am likely to be sending a sell signal by mid-July.
I repeat from last month:
“There is one more consideration. This is the Sell-in-May period (SIM). In 2016, the market rose in the SIM period. There have never been 2 consecutive up SIM periods. Blending all of the considerations together, I think that there will be a sharp selloff in the July 15-October 27 period. The decline will likely occur in a very short period. The sentiment will drop from very bullish to overly bearish, and the indices will then rebound quickly, leading to a positive close for the year. Once these cycle dates approach, one must verify or confirm these dates with market readings and with other cycles.”
From that viewpoint, the market is on borrowed time. Let us look closely at the NASDAQ. I think that the 2 most important considerations are the upturn in the volatility index known as the VIX. Here is the seasonal graph. There is a strong seasonality in this volatility index. From July 20th to October 9th, the VIX has risen in 74% of the last 27 years as denoted by the green line. This does not necessarily bring lower prices, but it does suggest an end to the low volatility period. As readers know, cycles suggest lower prices beginning somewhere between mid-July and mid-August. The recent NDX 100 price action suggests that the move will be to the downside.
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.
Cycles Research Investments, LLC does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent.
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