In the beginning of last week, the talk of the town was recession. Oil tumbled 10% as the fear of recession was played out on media. But last Friday’s jobs data was stronger than expected growth. The strong jobs data dispelled the fear of recession a little bit, then the worrying of a 75-basis point rate hike immediately came to forefront. It’s a highly uncertain time and the market is showing its struggle through charts.
In our last member private email, we emphasized that the prior S&P 500 swing high at 3946 is an important indicator for the validity of the bullishness of the weekly cycle. After five straight bullish trading days last week, the S&P 500 still was not able to take out the swing high as of last Friday. The DOW is in same posture that left the prior swing high untouched. The NASDAQ though took out the equivalent swing high last Friday but failed to closed above it.
So now out of the three indices, only the NASDAQ presented a bullish daily cycle by having a slightly higher beta cycle high. Presently the S&P 500 and DOW have a bearish posture on their daily chart. It is entirely possible that the market rallies on Monday to enable the S&P 500 and DOW to make a bullish daily cycle chart. Time is essence here, the S&P 500 and DOW have to make the bullish statement in the next 1-3 days. If not, then the market would meander in no man’s land again.
The earnings season starts next week. The June CPI data is scheduled to be released on next Wednesday at 8:30am. If the CPI is not shockingly low, the Fed will be on schedule to hike 75-basis point in July Fed meeting. This information is well communicated to the street through various Fed official talks. The market has priced in 75-basis point hike in July meeting. Earnings season will probably not surprise on the good side. The companies know that it is a bear market and they tend to release all the bad news out without hesitation. It’s not so bad to dump all the possible bad news out now since the stocks have already been in the penalty box anyway.
Technically, the S&P 500 is 13 days (still having a lower high so far) into the daily cycle which is in the daily cycle top timing band. The market could fall down to start the daily cycle bottoming process any day now.
Below is the S&P 500 weekly chart that documented all the weekly cycles since the start of the 4-year cycle in March 2020.
You can see that the June 17 2022 weekly cycle low is secure and it is 3 weeks into the currently weekly cycle.
After the Jan 2022 top, the weekly cycle low (occurred on 02/25/2022) took out the prior cycle low (occurred on 10/08/21), the 02/25/22 lower weekly cycle low declared the trend change. So after the trend changed from bullish to bearish, the next weekly cycle decisively turned in a bearish cycle by spending only 5 weeks in the low to high phase to make a top on 04/01/22. After the 04/01/22 top, it spent 11 weeks to make a bottom on 06/017/22. You can see why a bear market rally is always short lived and a bull market selloff is also very short lived. This is the precise reason why we should always trade with trend. Sometimes you can make a lot of mistakes, you can still come out right if you are trading with the trend. But if you are trading against trend, a small mistake can turn into a big one.
Let’s see if the S&P 500 swing high at 3946 can be taken out in the next 1-3 days.