Today the S&P 500 cash index took out the previous day’s high and closed above it. Not only it closed above the previous day high, it also closed above the weekly and monthly pivot range. The strong close implies that the daily cycle low is in place. This daily cycle finished in 14 days, which is relatively short in cycle length.
The fact the daily cycle finished so quickly really shows the strength of the cycles despite all the talks about tariffs/rising interest rates/Russian investigation, etc.. Prior to the market correction in February, the semi-conductor leadership stock Micron peaked on November 20, 2017. While the blue chip stocks went crazy in December and January, Micron was contained in a downward triangle. Micron bottomed with the general market on February 9th, now it is breaking out to a new high in the last 17.5 years. So next time when you want to find a leading indicator for market top, look no further than the semi-conductor index. Normally semi-conductor is a great leading indicator for market tops and bottoms. Semi-conductor demand is very sensitive to the economic activities.
Now with the conclusion of the two-year cycle bottom, what can we expect from the 2nd half of the four-year cycle?
- We may enter a period of sideways market which still maintains the bullish posture but the index may be flat for the year. The flat market happened in 1986 and 2006, both were precursors of a four-year cycle top. The odds of having another straight up 2017 is less than 50%.
- After the sideways consolidation, the market will give another fabulous run to conclude the four-year cycle top.
- Major borrowing cycle, major capital spending cycle and major housing cycle are the signs of the final market top. We believe the 2nd half of the four-year cycle will benefit the financials (borrowing), tech (capital spending) and home builder (housing) sectors.
The March 2nd low @ 2647.32 is the new stop loss. If the market goes below this low, we have to re-evaluate the market condition. As long as we don’t go below this low, the bull market is well and alive.