The relentless rally in 2023 made bulls and bears equally confused.  A Bank of America strategist who has been quite bearish all along was forced to declare that the bear market is over and a new bull market starts now because the S&P 500 rallied more than 20% from the October 2022 low.  Is it a good idea to enter the market now because the market has rallied more than 20% from a seasonal low?  20% rally is an arbitrary number someone came up long ago and it shouldn’t be the definition of a bull market.

In our opinion, a new bull cycle can’t start until the Fed starts to lower rates which is quite some time away from now.  The Fed hasn’t even finished raising rates, even though the street is anticipating the Fed to pause in June meeting.

The bond market is not seeing a new bull cycle as the yield-curve inversion is unrelenting.  And the safe haven seeking in mega tech rally is not a sign of a new bull cycle.  It is a risk aversion rally all along in 2023, which is the typical pr-recessionary behavior.  The emergence of AI also camouflage the bull market readings.  Yes, AI is real and will start a mega cycle in tech down the road.  But not now, AI can’t erase the Fed monetary cycle.  AI led bull market will have to wait for the general market cycle.

In weekly cycle point of view, the S&P 500 is 12 weeks into the current weekly cycle and meeting the August 2022 high resistance at 4325.  It is also near the 61.8% retracement of the entire 2022 correction at 4311.  With the weekly cycle positioned in the top timing band and the price is at critical resistance level, the strong probability is for the market to fall than rise after the June Fed meeting on Wednesday June 14 or the initial jobless claim on June 15.

It is very difficult to predict the Fed rate decision and or the initial jobless claim number.  Even if you know the numbers in advance, you still can’t predict how the market would react to the fundamental development.  In our cycle analysis, we believe the fundamental events move the market in the direction of the cycle that’s currently in motion.  In other words, if the cycle is pinned at top timing band before an important catalyst, the likelihood of the cycle to turn down is strong.  We can be wrong too because selling a top in much more difficult than buying a bottom.  Short selling is anti-gravity in the stock market.

Below is the S&P 500 weekly chart.  Even if the S&P 500 is going to go higher and longer than most of the bears want to believe, we still believe that there is a likelihood of some swings around the important events next week.  The VIX has come down to pr-pandemic level.  The market is extremely complacent in this mega tech led AI rally.

One important question we would want to ask ourselves is: Does the Fed want the market to rally to infinity as the Fed’s job of fighting sticky inflation is not finished yet?  We are very cautious about the present rally.

 

 

 

Our AI holding PLTR stock has attracted sellers on June 7 after a string of exciting news from the company.  After a relief rally on June 8, PLTR attracted sellers again on June 9.  PLTR  produced two intraday bearish signals in three days, that is a warning for us.  Could be PLTR making a top before the NASDAQ?  c3.ai stock AI had a climax top on May 30 along with Nvidia.

It is always the case in the stock market rally that soldiers fall before the generals.  In the AI rally, Nvidia is the general, c3.ai is the first line soldier and PLTR is the second line soldier.  Nvidia has to trade below 366.35 to form a top.  So Nvidia is not there yet.  Nvidia closed at 387.70 last Friday.  Nvidia looks invincible now as it is the king in AI rally.  But all stocks are heavily influenced by the monetary policies, especially growth stocks that crave on easy money policy.  Nvidia lost 68% during the 2022 bear market.

We are very cautious with PLTR in short term.  But very bullish in longer term.  Software will benefit more than hardware in the AI race.  The Internet providers disappeared after the initial infrastructure boom.  It is software that can benefit from the infrastructure over a long time.