The stock market cycles are working quietly without a hitch while the media is talking up a storm about interest rates, the Fed, inflation and growth value rotation, etc.. It’s very confusing to figure out the effects from all the different variables on the stock market. The cycle analysis makes it simple as we don’t pay much attention to the fundamental reasons which propel the cycles. We focus on price and time to locate where the markets are in the point view of cycles.
Clearly the stock market March 2020 low is the beginning of a new economic and stock market cycle. In this new 4-year stock market cycle, it exceeded the previous 4-year cycle high within few months of starting the new cycle. By definition, this new 4-year cycle is a bullish cycle, which means the low to high bullish phase will last minimum 31 months based on our historical work. We are only 12 months into the new 4-year cycle, so it is way too early to turn bearish. Yes, we will have 10-15% corrections along the way, but the correction should be treated as buying the dip opportunity.
The NASDAQ just had a 10% correction which we view it as a buying opportunity for the growth stocks. The growth to value rotation is on going, but this rotation doesn’t spell the end of the growth stocks. In this 4-year cycle, the growth stocks, especially the transformative technology companies will win over value companies over time. We welcome this growth to value rotation because it shows the bull market is broadening to include under performing stocks. A bull market is supposed to lift all stocks!
Technically, the current weekly cycle started on 03/05/2021. It is three weeks into the weekly cycle. April is a typical location for a seasonal high. It would be 8 weeks into the weekly cycle by the end of April. We will be watching for signs of top around the end of April and early May to see if a seasonal pattern is unfolding. If indeed it produces a seasonal high around April/May period, we should expect a sideways to down summer as the market works off the higher inflation concerns.
We believe the inflation will be contained by the end of summer. We will not encounter runaway inflation like the 70’s. There are too many new transformative companies that are deflationary in nature. Surging productivity and technological innovation will play a big role in lowering cost pressures, therefore containing inflation.
The market will take advantage of the transient inflation concerns and create volatility. An investor shouldn’t be distracted by the volatility. A trader should take advantage of the coming volatility in summer.