As I have been expecting for almost a year now the Nasdaq has finally reached its all-time highs at 5100.
That being said, the 5100 level is a huge resistance zone. It has held for 15 years. The bull is very mature at 6 years old, and without the benefit of further QE to continue driving it I really doubt we are going to get a sustained move above 5132. So I expect the stock market is going to top this year. I’m not expecting a sustained move above 5132 until stocks suffer a major multi-year cycle low. Something along the same lines as 2002 & 2009. At the very least we should experience a 38% Fibonacci retracement of this bull run before breaking through that resistance and producing the next bubble.
Don’t get me wrong I think there is still good money to be made in stocks this year, but traders will need to be patient and wait for daily and intermediate cycle corrections before buying, and they will need to sell once the market retests the 5100 high.
The current daily cycle is getting mature at 31 days; that along with the 5132 resistance zone should force a smaller daily cycle top next week, and a move down into a cycle low by the May employment report. Either AAPL’s earnings release on Monday or the FOMC statement on Wednesday could force a top.
Traders should be in cash this week and just waiting patiently for the correction down into the cycle low (selling short is out of the question as the Fed could abort or stretch the cycle low). Assuming the market is allowed to correct naturally over the next 2 weeks there will be a buying opportunity at that cycle bottom for another run back to, or marginally above 5100.
At that point a second failure to breach resistance should trigger a larger intermediate degree correction as the market starts to anticipate poor second quarter earnings. One that should retrace 50-100% of the last intermediate rally out of the October bottom.
This should prove to be the second (and probably last) great buying opportunity of the year as I expect the Fed will start talking extremely dovish, and probably even initiate an intervention to prop the market up. Either way traders should buy this bottom for a third run up to resistance at 5132. This time we will almost certainly see at least a marginal breakout above 5132 as the big money players manufacture new highs to suck in retail buyers and allow them to unload their long positions at the very top of the bull and get short.
Once the third test at 5132 fails then it will be time to abandon the stock market as the easy money will be over and the market should begin moving down into the multi-year cycle low with a probable bottom next spring. This is where we should expect at least a 38% retracement of the cyclical bull, and at some point the beginning of QE4 as the Fed panics when they are unable to stop the sell off with just talk or minor interventions.
Once QE4 begins the next leg, the bubble leg, should begin and biotech should produce a true parabolic bubble into 2017 or 2018.
For the rest of the year traders need to be choosy and play the stock market only at cycle lows when sentiment is extreme.
How does the USD play out in this scenario?
I’m still waiting to see if the dollar goes sideways or produces a real intermediate correction. But I do expect the dollar will rally to 110 or 120 during the time the stock market is moving down into the 7 year cycle low.
Good report, thanks Gary.
The world would have to practically end for SPX to pull all the way back to the 2007 high this summer. That would be around a 25% correction (bear market). The Fed hasn’t allowed a normal 10% correction in years! 25% would be asking for end of world scenario. However, I agree that IF we see an 11% (or more) correction that doesn’t get back above negative 10% then you have to assume the character of the market has changed, and the party is likely over for the bulls.
Gary, What will happen to gold and Commodities during the next bubble in Biotechnology? It would seem reasonable that all of the hot money would be sucked into the biotech bubble.
My expectation is that everything will get sucked down into a deflationary period as stocks move down into their 7 year cycle low. But as we come out on the back of QE4 everything will start to rise together, similar to what happened in 09. Once the biotech bubble bursts then liquidity will flow even faster into commodities.
I tend to agree with Jay on this….very hard to see a 25% type correction when even a 5% correction brings out the Fed speak. I could see a scenario where SPX drops to 1820 and that would be about it before the bounce commences. Anything more and that would be a very slippery slope that potentially there may be no coming back from (even with QE4). I also tend to think that QE4 would signal to the market that the economy is essentially broken and the only purpose for QE is to elevate financial asset prices. My gut feeling is that the market will initially rally (once QE4 announcement is made) and then start a correction. I can’t see QE4 fueling the market the way the previous QEs have……of course my view could be completely wrong and the market does something else.
Of course QE4 would elevate the markets. It would simply be more of the same – cheap money for the banks and the corporates to buy other assets with.
They will keep on doing this until it all melts down and that meltdown could be many years away.
And when the final melt-down occurs, then stock prices may be the least of anyone’s problems?
I like Gary’s map, the smart money seems to be on to this. The problem is the smart money has not been so good about this the extremity of this rally since 2009. I see parabolia starting sooner than later, and the chance of a correction so sidelined bulls can get in are getting less and less probable. This market may be never look back from here.
Why not go short S&P500 Nasdaq etc. Long cycles is pointing down from mid May->June/July. Some say the bondmarket is rolling over and after bonds it’s time for the stocks. Silver will not break out to the upside until next summer.
No way I would short this market. The Fed is repeatedly intervening to keep it propped up. Just wait for it to correct, and then when it does buy.
Gary,
Would you advise going long just before FOMC announcement on Wednesday?
My thinking is that Yellen will find a way to say that a June rate hike is out while still holding out for a rate hike later in the year. Your thoughts?
Thanks in advance.
Why get in front of the elephant? There is volatility there… the SNP may swing up 10 points when she farts and down 10 when she sneezes. Wait for the low, then for the swing, in the timing band, and buy. It’s protection. It’s insurance. Low cost insurance. As someone who has gotten burned by not stopping out, and also gotten stopped out many times during volatile events, only to see the market rebound and make my original position profitable, let me just say that the insurance of waiting for the swing is worth every penny it costs you. Don’t get in front of that elephant. Patience.
I’m not really expecting a daily cycle low until the employment report on May 8.
Rather than buy the biotechs after a 5x move in 4-5 yrs, I would rather purchase silver in the mid teens for a 4-5x move from these levels. Much more likely than Nasdaq going to 20000 -25000 or biotechs increasing 5x AGAIN. At least in the next few years. Not to mention the safety and security of assets that cannot go to zero or be seized or taxed into oblivion by the crooks in banking and govt (and we know this to be the same slimy breed.)
Wait until people learn how silver is the most potent antibiotic on Earth and puts the Sickcare Industry’s poisons to shame.
Gary, do you know of a leveraged etf that tracks ibb? Both long and short? Either 2 or 3,times leverage.
Dean, BIB and BIS are 2X leveraged long and short on IBB.
Thanks