The market went crazy last week with Fed’s dovish statements. The market is banking on the Fed cutting the interest rates at the end of July. Have we been here before? The market was banking on an imminent trade deal at the end of April, only to be shocked with a no deal at the beginning of May.
When the traders are pricing in a 100% chance of a July cut, the market may have a way of disappointing the majority of the masses. We believe it will be a sell the news event at the end of July. Technically, it will be the 8th weekly bar in the current weekly cycle by the end of July. To have a weekly cycle high at 8th bar is an indication of a slightly bearish weekly cycle. A true bullish weekly cycle high normally happens after the 15th bar.
In order for the market to have a breakout to the point of no return, the indices have to have closings at the following levels:
The DOW at 28186, S&P 500 at 3077, NASDAQ at 8572. So we shall see if the market can achieve these levels by the end of July.
In short term, the S&P 500 cash index is 11 days into the 2nd daily cycle which is in the beta cycle high timing band. We have 13 trading days left in the month of July. We shall see some volatility in the coming earnings report season which starts on Monday.
The market has overlooked the earnings slowdown so far. The earnings growth has been flat this year, but the market rallied 25% based on the hopes of a trade war resolution and Fed’s dovish monetary policy. The price swings are completely sentiment driven. The market’s ability to make such large swings demonstrates ample liquidity, in other words, there is plenty of cash on the sideline that are willing to chase alpha solely based on the news events.
Like what we have blogged in the past, we are at the dawn of an unprecedented bull market propelled by disruptive innovations, which will eventually lead us to a grand bubble. We are far away from the bubble level yet.
Since the beginning of Donald Trump’s involvement with politics, the market has been flooded with headlines and tweets that can make anyone insane. The best way is to ignore all the noises and only pay attention to the price and time. After this volatile summer, the market will present a great buying opportunity in the fall. You need to have courage to buy when the sentiment is overwhelmingly bearish.