Cycles & Seasonality Update - Quick Note
The S&P 500 gapped down yesterday on news of hotter-than-expected inflation. The SPY held the 21 EMA for now, but things do seem a bit concerning. Referring to the chart below:
Global Money Supply (black line below) appears to be declining,
MACD appears to be ready to make a bearish crossover,
Net New Highs fizzled out and today there were Net New Lows,
The McClellan Breadth Oscillator fell below zero representing weak breadth,
Volatility (VIX) spiked, 13.6% today, warning that a period of higher volatility may be upon us.
The cycle chart below shows our Cycles Composite (blue), Energy Cycle (Pink) and Seasonal Cycle (green) for the S&P 500. We’ve noticed that it has been inverted since mid-January. This is caused by the strength of AI-related stocks and Large-Cap Tech stocks. If the inversion ends, the S&P could be on the verge of a pullback that could last until 2/21 to 2/24. This could be followed by another uptrend that could last until 3/3, which could be followed by more weakness.
Notice that the cycle forecasts for the Equal Weighted S&P 500 (RSP) has been much more accurate as the equal weight index is less skewed by the strength of Large-Cap Tech. The RSP cycle chart also forecasts similar weakness.
Our cycle forecasts for the 10-year Treasury Rate (TNX) have been pretty accurate and point to higher rates in the next few months. This could also be tied to some sticky inflation.
This is the right seasonal time for the market to run into some resistance and volatility. Referring to the “Sitting President Running” forecast below (green forecast) the market tends to weaken in the middle of February until the middle of March.
Our cycles also point to a jump in the VIX starting now and lasting until mid-March. This supports the upcoming negative seasonality.
Oil appears to be setting up for a seasonal uptrend.
This is the time to be mindful of risk and be more selective in making new investments. Protect your gains and remember that there will always be more opportunities in the market.
Disclaimer - All materials, information, and ideas from Cycles Edge are for educational purposes only and should not be considered Financial Advice. This blog may document actions done by the owners/writers of this blog, thus it should be assumed that positions are likely taken. If this is an issue, please discontinue reading. Cycles Edge takes no responsibility for possible losses, as markets can be volatile and unpredictable, leading to constantly changing opinions or forecasts.