The Market's Last Hurrah
Market Conditions
The stock market was hit with some profit-taking and rebalancing by institutions and smart money on Friday, the last day of the quarter.
Moreover the Commitment of Traders (COT) report for the Nasdaq 100 shows us that as Asset Managers continue to accumulate, Market Makers sold long positions and accumulated short positions. This leads us to believe that the Market Makers will seek to cover their short positions at lower levels in the near future.
We believe after a quick dip, the Independence Day Rally will occur as breadth has improved significantly.
Furthermore there has also been a rotation out of Semiconductors and into Energy, Communication Services, Real Estate and Financials. As more sectors participate in the rally, the rally has higher odds of continuing.
The S&P 500 (SPY) was down 0.05% for the week. Despite some profit-taking, the SPY is still bullishly configured as it is trading above all it’s moving averages and the Ichimoku Cloud. It actually closed 2 cents above the 9 EMA. With that, it’s hard to get bearish. However, RSI is making a bearish divergence as MACD made a bearish crossover. CCI is still above 0, so the uptrend is still intact for now. We do count 5 Distribution Days over the past 5 weeks, so a retest or break of the 21 EMA is definitely possible. Typically 4 to 6 Distribution Days occur within 4 to 5 weeks before a reversal. That could happen before or after the Independence Day Rally.
You can see that the SPY is forming a double top pattern. According to textbook expectations, this is typically a sell. However, the VIX remains docile and has not spiked. Notice in the chart below that the VIX is still in a downtrend below all moving averages. Therefore, there is a good chance that those who shorted the market on Friday will face a short squeeze next week.
Cycles & Seasonality
We believe that the Bull Market has a bit more to go despite temporary disturbances before a meaningful correction occurs. A 4-Year Cycle decline and trough is expected to occur from now until November 2024 and those have an average drop of 19%.
Here is a snippet of our cycle chart for SPY to the beginning of August. We believe that selling pressure could begin as early as 7/8, right after the Independence Day rally. This does not necessarily mean that the SPY will fall into a downtrend below the 21 EMA at this time, even though that is possible. But we do expect selling pressures to pick up and divergences are possible. For our complete Q32024 Cycle Forecasts check them out here: https://cyclesedge.com/
In the Premium Section we’ll go over the Primary (Intermediate) Cycle, the 50-Week Cycle and Election Year Seasonality. The combination of the cycles we’ll go over today leads us to believe that the stock market will be beginning it’s Last Hurrah before the Bears return and push the market lower.
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