Change is in the Air!

With the S&P 500 hitting new yearly highs, its obvious that something is changing. Let’s analyze the markets using the new Cycles Edge method.

Situational Awareness: Before Friday June 2nd, this has been a bifurcated market where Virtual Economy stocks led, specifically Big Tech and and Artificial Intelligence stocks, while Real Economy stocks floundered, seemingly left behind to die a slow death. NVDA is a leading stock this year that is both big tech and AI and the chart below show it’s strong uptrend:

Meanwhile, CAT is a blue chip industrial stock that was in a downtrend all year. However on Friday 6/2 it spiked 8% on heavy buying volume. This is evidence that the rally is broadening out to other sector, a sign of strength.

The chart below displays the pickup in market breadth and volume. The Advance/Decline Lines for the New York Stock Exchange ($NYAD) and Nasdaq ($NAAD) both moved above their 21-day moving averages. Similarly the Advance/Decline Volume Lines for the NYSE ($NYUD) and Nasdaq ($NAUD) also powered higher. Note that the volume flowing into the NYSE shows a more powerful buying signal, confirming that money is flowing into more areas than just Tech.

We can see from the chart below that the Real Economy sectors led on Friday, with Basic Materials, Industrials, Energy, Consumer Cyclicals, Real Estate and Financials leading. Meanwhile Technology’s advance was relatively muted, supporting the idea of money flowing to other areas.

This is quite a different look compared to the YTD performance for the sectors, which shows Technology and Communication Services outperforming every other sector.

In conclusion, I believe that there could be money to be made in Real Economy stocks over the next few weeks as the Basic Materials, Industrial and Financials play catch-up. Big Tech and AI appear a bit extended and probably need to reset on the 10 EMA or 21 EMA to set up another leg higher. Let’s look at some setups next.

Trend-Following: The following section details stocks that I believe are setting up for possible runs higher. Assume that I either have positions or could buy soon. If this is a problem, please stop reading.

CAT has a kicker candle on high volume, signaling a change in trend to the upside. I would look to buy shares on a pullback to one of the moving averages. A pullback to the $213 to $214 area would make a good entry.

BAC is above the 5, 10, 21 and 50 moving averages and has a tight pattern, making it buyable now. A reasonable price target could be the 200 SMA at around $32. I would also set a stop order under the 10 EMA around $28.

DOW showed heavy buying volume on Friday. Upon a break above the downtrend line, I would consider buying and setting a stop order under the 10 EMA at $50.

BA appears buyable and could make a run to break the sideways base that it has been in all year. It is above all moving averages and shows strong buying volume. The On Balance Volume indicator (OBV) displays the trend of strong buying volume.

AFRM broke above the 200 SMA and is now above all moving averages. This is a fast-moving growth stock, so the move up could accelerate. Similarly if it fails, the move could be equally swift. I would keep the stop order tight under the 10 EMA at $14.

LYV bounced off the 21 EMA and appears ready to move higher. The Bollinger Bands have been in contraction. Contraction leads to expansion, and I believe that LYV could continue its move higher. A stop under the 21 EMA, around $79, seems reasonable.

CTAS appears to be breaking out from a base that lasted all 2023. Heavy buying volume appears to be supporting this breakout. I seek to participate with a stop under Friday’s low around $474.

Cycles: Although the stock market broke to new YTD highs, the Cycles Composite and Seasonal Cycle are warning of a possible pullback. Looking at the forecast below, a top around 6/6 is possible. I trade the chart in front of me and will continue to make trades, however this cycle forecast reminds me to manage my downside risk with stop orders. In case a down-cycle does begin around 6/6, my loss will be minimal.

Disclaimer - All materials, information, presentations and ideas from Cyclesedge.com are for educational purposes only and should not be considered financial advice. For specific advice, one should consult a registered Financial Advisor. Nothing presented here should be considered as specific investment, stock, option, ETF, future, commodity advice. This blog may document actions done by the owners of this website, thus it should be assumed that positions are taken. If this is an issue, please do not continue using this website. All investments contain risk and some positions could lose more than the initial investment value. All readers must manage their own risk. This website takes no responsibility for possible losses, as the financial markets are volatile and unpredictable and opinions and forecasts provided here could be wrong. Past performance is not indicative of future results. Hypothetical or simulated performance based on past cycles or future projections have limitations and have no guarantee of being able to predict the future. Cycles can contract invert or extend in unpredictable ways. Past performance does not guarantee future results. This website provides no advice.