Do We Get a Summer Pullback?
Premium Section: What Can Take the Market Down?
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So far, the market has shown resilience in this headline-driven environment. Despite intraday sell-offs, the S&P 500 (SPY) continues to hold above the 9 EMA (green) and 21 EMA (yellow). However, Global Liquidity (black) appears to be declining, which could signal a potential pullback or a sideways consolidation—especially as RSI shows bearish divergence in the overbought territory. Additionally, MACD is reflecting waning bullish momentum. Net New Highs are tapering off, and the McClellan Breadth Oscillator remains negative (though it is beginning to curl upward). For now, the persistently low VIX may be the key factor keeping the market afloat. Technically, unless the SPY breaks below the 21 EMA, this uptrend remains intact.
The NYSE Advance/Decline Line ($NYAD) hit the Upper Bollinger Band and is now heading lower as RSI similarly is in a downtrend after a bearish divergence. MACD just made a bearish crossover, so breadth may continue to deteriorate.
Let’s analyze the SPY using the Cycles SMA system. SPY is currently tracking a 120-bar Primary Cycle (larger cycle bracket) and 40-bar Trading Cycles (smaller cycle bracket). The corresponding Simple Moving Averages (SMAs) are calculated by dividing each cycle length by 2—so the 20 SMA (blue) aligns with the Trading Cycle, and the 60 SMA (green) aligns with the Primary Cycle.
Here’s the key—since this rally began, there has consistently been a pullback around Options Expiration Day (the third Friday of each month). In both May and June, those pullbacks retested the 20 SMA (blue). If this rally is to continue, a pullback to the 20 SMA starting around July 18th (Options Expiration Day) would be perfectly normal. A deeper pullback lasting until the Trading Cycle renews around August 1st is also possible. Importantly, this is the second Trading Cycle within the broader Primary Cycle, and historically, the sharpest corrections occur during the final Trading Cycle—when the Primary Cycle resets. That final phase is expected between September 11th and 29th, suggesting this current pullback should be shallow… unless fundamentals shift and these cycle dynamics take hold…
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