Medium-Term Equities Outlook (months)
Technical Summary
The sharp reversal in the markets has turned the BSI to Sell the rallies since June 6, 08 from our Neutral since Jan. 24, 08. Cardinal comes from the Latin word "Cardo" or "hinge", and marks the turns in seasons among other things. Since the Moons drive emotions a Moon soon after a Cardinal date may mark the actual turn. One such New Moon is coming up on Jul 2nd, and again the markets are lining up to possibly make it significant. The markets are both short term overbought but still long term oversold, a potentially dangerous combination in a Bear market, and most cycles indicate we are already in one. My most likely scenario has us retesting current levels later in May after a pullback to relieve short term overbought conditions as shown here. Another possibility would repeat this test of current levels later on this Summer after another larger pullback into many cycle lows in late June as shown here. Finally there is a possibility of making new lows by late June, similar to the path taken in February-March 2001 when the SPX declined from 1400 to 1070 in 8 weeks as shown here.
Cardinal New Moon of May 5th and July 2nd
A number of cycles are pointing to the New Moon of May 5th as a possible high for a few weeks or more. This high may even last into late June since most cycles point to late June as a low, including the quite accurate 2 year cycle shown later.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com
Preferred Wave count
The A-B-C-D-E correction into May 19th continues to be the favored wave count. We will probably make a low wiht this New Moon of June 3rd, but any rally will probably be short lived and we make a much lower low with the next Full Moon of June 18th.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com
Long term still oversold
We can see that most sentiment measures are still quite oversold compared to the last 10 years, but they have turned up enough that we could continue to follow the path taken in 2001. I have added all the equivalent dates with the 2001 turn dates and so far we could be on track for a May 5th high with a bad decline into late June and early July. Take note that both the Blue Tick line and the Red Trin line are not following the market higher, possibly showing distribution in this last wave up.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com
Short term overbought but long term oversold
Despite the short term overbought conditions, many longer term sentiment measures remain oversold, so any top made soon may be retested later in May before we decline for the expected late June cycle lows as shown in the possible path below.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com
The Fed and 2001 revisited
Because of the long term oversold conditions, and the rather recent panics of January and March 2008, we could see the market go into a longer corrective period with little price gain, like it did after 9/11. The behavior of the Fed, the 2 year note and the 3 month yield are close enough to support such a scenario.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com
Longer term Breadth Cycles are dangerous until Summer 08
Both the 8.6 month (260 day) cycle, and the 2 year cycle are pointing down into Summer 08, suggesting the low of 2008 will occur then.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com
The 4 year cycle is peaking
While the 4 year cycle is most accurate for lows, it is behaving strangely enough to warrant keeping an eye on future behavior of these indicators so close to the theoretical cycle high.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com
The 400 month or 1/3 of a Century long Bull market is ending
Counting 400 months from the October and December 1974 double bottom that started this Bull market takes us to February and April 2008.
