Summary: Normally the rally out of a Yearly Cycle Low does not start to roll over into an ICL until the 3rd Trading Cycle, especially with the artificial liquidity being pumped in by the FED and other Central banks. For a more bullish scenario to play out, TCL2 must form a higher low than TCL1 and TC3 should make new highs before the longer Intermediate Cycle tops. That said, Stocks still seem disconnected from the real economy and fundamentals may now be taking hold as valuations are at unprecedented levels given that all indicators point to a recession. Perhaps the market is finally realizing that with Coronavirus surging again, jobs and economic activity will not be coming back to February levels anytime soon.
Stocks (SPX): SPX W.13 have formed a weekly swing high and closed slightly below its 50wma but still above its 10wma. A close below it’s 10wma on a weekly basis is normally a strong signal that the longer Intermediate Cycle has topped. A IC Top in just W.11 would be Bearish and to remain bullish, TCL2 must form above TCL1 and Trading Cycle #3 (TC3) must make a new IC High.
The SPX D.30 is moving into TCL2 now and is now in the very early part of my timing band to find its next TCL. A high on just D.16 is normally Bearish and Price should make at least make a lower low than D.21 but with the Fed pumping Billions into the market, one never really knows. Price closed below the 200ma on Friday and below my Blue TC2 uptrend line, signaling a move into TCL2.
My last chart is a 3 year Weekly of the Banking sector (KBE ETF) which is quite Bearish when compared to the Broader Stock Market. The KBE chart shows that Yearly Cycles are making lower highs and lower lows. Note that the KBE rally out of the March lows found resistance near the 50wma and closed below the 10wma on Friday. Since the June peak, SPX is down 7% while the KBE banking index is down over 20%. This reflects that non-performing loans are on the rise (e.g Both Commercial & Residential Real Estate plus Oil & Gas Frackers are struggling under heavy debt loads).
Bonds (TLT): TLT W.3 is very likely now with a close back above the 10wma and my Red IC Downtrend. W.11 would be very short for a Bond ICL but is probable with this week’s price action.
TLT D.15 made a new TC High that closed above the previous high on D.4 and solidly above the 50ma. A new high on D.15 shifts the odds towards a right translated cycle that should form a higher low.