The recent market action has me wondering if the next
leg down in the cyclical bear market has begun.
I always
expected that we would see a very convincing rally out of the October yearly
cycle low. I thought it even possible that we would test the 200 day moving
average. Most bear markets do rally out of the initial leg down and test the
200 day moving average.
Recently the
S&P made two attempts to close and hold above the 200 day moving average.
They both failed. That was a loudly ringing warning bell.
As a matter
fact every index, except the utilities, is now trading below its declining
200 day moving average, and that includes all the major European and Asian
markets.
At the moment
my concern is that the market is now moving into the timing band for a major
daily cycle low (due in the next 5 to 10 days). The current daily cycle is
left translated (topped in less than 20 days). That is relevant because most
of the time left translated cycles move below their prior cycle bottom. The
last cycle low occurred in October at 1075.
Now I'm not
suggesting that the stock market is going to crash below 1075 in the next 5
to 7 days. However the S&P has broken below the 1220 support zone. When
support was broken in July it led to a seven-day 17% crash.
I don't know
if the breaking of support this time will lead to another climax selling
event or not. I do know that the market is now in the timing band for some
serious selling. And, this is beginning to look like a counter trend rally in
a bear market that is in the process of topping. If that's true then we are
in the period of time when the next leg down should begin.
Confirming
this is the fact that the dollar index has rallied back above its 200 day
moving average and completed an intermediate cycle bottom. The dollar index
is currently on only the third week of this new intermediate cycle. Those
cycles tend to run about 20 weeks, so there is potentially many more weeks of
upside left before the dollar moves down into another significant correction,
which presumably would drive the next bear market rally in stocks.
The safest
position at this time is to be in cash, and that's exactly what I did with
the model portfolio yesterday morning.
Toby Connor
Gold Scents
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