The bulls have been in control in 2023 against the backdrop of an inverted yield curve and the regional banking crisis.  The market has all the bearish reasons to go down in 2023, but it didn’t.  It is perplexing for the diehard bears, but at the end of the day, one has to respect the price momentum and trend.  The rally from the mid October 2022 low has exceeded more than 50% of the retracement.  A bear market rally seldom goes more than 50% retracement.  At this point, it is overbought in short term.  The daily and weekly cycle oscillators have turned down, but the strength indicator and longer term cycle oscillator have not turned down, meaning this weekly cycle correction will be short and shallow.

Below is the S&P 500 weekly chart.

It is 14 weeks into the current weekly cycle and it met resistance against the rising white line in the chart.  This rising white line is drawn by connecting two tops from the previous 4-year cycle (February 2016 to March 2020) and extending it into future.  One top is from  09/12/2018 and the other top is from 02/21/2020.  The current 4-year cycle (March 2020- ???) broke out the white rising line, but fell under it during the 2022 correction.  Now it is trying to overcome the same white line again, but meeting resistance.

If the S&P 500 is able to stay above the rising white line, then it has the potential to make a double top, to recover the entire 2022 correction.  It is highly unusual for the mid October 2022 low to be the current 4-year cycle (March 2020- ???) low.  Most likely the mid October 2022 low is the current 4-year cycle’s mid cycle low.  In other words, the current rally is the second leg rally of the 4-year cycle (March 2020 – ???) and it has the potential to take out its previous all time high.  The mega techs such as Apple, Nvidia and Microsoft all have already made their perspective all time high.

This second leg rally is propelled by liquidity, momentum and safe haven seeking behavior.  Artificial Intelligence added excitement and clouded the big picture.  It made people to believe that a brand new bull market is born here because of AI.

Based on this big picture analysis, we believe that the general market rally will resume after it works out the short term over bought condition.

Trading back to 50-day moving average will be sufficient to work off the overbought condition.  It is about 5% correction for the S&P 500 to reach its 50-day moving average.  Watch for dip buyers at around S&P 500 4200 level.

It takes about one year for one single monetary policy change to work through the systems.  So the market cycles connected with monetary policy changes will take much longer time than expected to finish.  The current 4-year cycle could be an extended one, goes beyond the average length of 48 months.