Both S&P 500 and Nasdaq indices made their four-year cycle bottom in February 2016. As the general market was rising from the four-year cycle bottom, the defensive sectors led the market moving higher in the first six months. As the market sentiment was gradually improving, people were getting less defensive. Six months into the early bull market, the defensive sectors lost leadership position and the tech sector rightfully took the lead. The Nasdaq index has been out performing S&P 500 index since August 2016. At this moment it is still out performing S&P 500 index.
Despite the impressive breakout of July 2015 high @5231.94 since August 2016, Nasdaq is showing a weaker position more than the S&P 500 index in terms of top formation. When Nasdaq takes out June low @ 6087.81, it will confirm the top @ 6341.70. Amazingly, you can see the target C @6341.70 is the result of the equal swing of AB. The swing rule doesn’t appear often, but when it does, it can give you real insight into where an advance is likely to end. It’s often so accurate that it’s almost like reading next week’s newspaper today!
Even when this June top @6341.70 is confirmed, it will NOT cause the market to crash immediately. The Johnny-come-latelies who missed the rally will gladly buy in on each selloff as they want to get a bargain in their newly discovered hot sector. This distribution process will go on throughout the summer. We suspect the market might even make a slightly higher high in August through October time frame before the real correction takes place. We suggest our readers to tread lightly with the tech sector as we are in the topping process of the two-year cycle phase.
Normally there is a two-year cycle within the four-year cycle. So we are expecting this 2017 yearly high to be the two-year (2016-2018) cycle high.
The S&P 500 index is doing better than the Nasdaq at the moment, but it is also in a similar topping condition. The new hot banking sector will probably keep the index limping higher, but the upside potential is rather limited. We believe the yearly high is most likely in already, the rest of the summer will be in a sideways trading range.
Discipline and selectivity are operative words to always keep in mind. We don’t have to be fully invested all the time, especially during the sideways dull summer.
Gather your cash and the fireworks will come in Q3 and it will last until Q1 2018. Stay tuned.