Sentiment Speaks: The Stock Market Is At Its Next Inflection Point

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Includes: BIL, DDM, DFVL, DFVS, DIA, DLBS, DOG, DTUL, DTUS, DTYL, DTYS, DXD, EDV, EEH, EGF, EPS, EQL, FEX, FIBR, FWDD, GBIL, GOVT, GSY, HUSV, HYDD, IEF, IEI, ITE, IVV, IWL, IWM, JHML, JKD, OTPIX, PLW, PSQ, PST, QID, QLD, QQEW, QQQ, QQQE, QQXT, RISE, RSP, RWM, RYARX, RYRSX, SCAP, SCHO, SCHR, SCHX, SDOW, SDS, SFLA, SH, SHV, SHY, SMLL, SPDN, SPLX, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TAPR, TBF, TBT, TBX, TLH, TLT, TMF, TMV, TNA, TQQQ, TTT, TUZ, TWM, TYBS, TYD, TYNS, TYO, TZA, UBT, UDOW, UDPIX, UPRO, URTY, UST, UWM, VFINX, VGIT, VGLT, VGSH, VOO, VTWO, VUSTX, VV, ZROZ
by: Avi Gilburt
Summary

The market has reached our next target for a potential topping pattern.

We will be watching how the market reacts off this region for signs of a major top.

My ideal structure is still looking much lower, but I outline points at which I am wrong in that expectation.

During the summer of 2018, the SPX rallied 9% during the trade war escalation. Then the market fell 20% supposedly on those same trade war issues. And, then the market rallied 20% again on “hopes” of a trade deal, and then continued to rally despite further escalation.

Are you sensing a theme yet?

The market will do what the market will do whether we are dealing with the trade war or not. And the fact that the market has both risen and dropped on the same trade war news is evidence of this, whether you want to see it or not. This is exactly what R.N. Elliott noted almost 80 years ago:

The causes of these cyclical changes seem clearly to have their origin in the immutable natural law that governs all things, including the various moods of human behavior. Causes, therefore, tend to become relatively unimportant in the long-term progress of the cycle. This fundamental law cannot be subverted or set aside by statutes or restrictions. Current news and political developments are of only incidental importance, soon forgotten; their presumed influence on market trends is not as weighty as is commonly believed.

So, let’s move into what we are seeing in “the waves.”

When the market busted the decline structure I was tracking in May as it moved back over 2800SPX, we had to begin looking back over the 2900 region again. And, in my last articles in mid-June, I highlighted the 2965-2990SPX target region overhead as my target before I would begin looking for topping signals again.

As of my writing this article, the market is now within our target region. And, the next time it breaks back down below 2890SPX, it will be an initial indication that a significant top may be struck.

For those that have read my articles through the years, you would know that, while we are not perfect, we have tracked this equity market better than anyone else we have seen. Starting back in late 2015, we identified the drop from the 2100 region down to the 1800 region, and were looking for the start to a “global melt up.” Our target was 2600+, and we reiterated this call going into the election – “no matter who was elected.” We also warned in the fall of 2018 that you should prepare for a 20-30% correction should the market break below 2880. And, then, after identifying the bottoming region of that correction in mid-December, we expected the market to rally back towards the 2865-3011SPX region.

And, if you have also been following carefully, you would know that I expect that this rally will resolve to the downside to test the December lows and potentially even break them. Yet, minimally, I would expect the market to drop back down towards the 2600SPX region.

Lastly, if you read my analysis carefully, you also know that I do not think this bull market rally off the 2009 lows has concluded. In fact, I have an ideal target zone between 3800-4100SPX by the 2022/23 time frame, which means I remain long-term bullish.

But, even though we have done quite well through the years in identifying the major moves in the market, as we all know, I can certainly be wrong about my expectations. And, my analysis methodology provides me with specific guidance as to where I am wrong. Most specifically, if the market is able to pull back correctively and then break back out through the 3020-3045SPX resistance region, then it would make it much more likely that there will be no more larger degree pullbacks and we are likely heading directly to the 3800-4100SPX target region sooner than I had initially expected.

Now, as many of you know, I raised cash when the market broke 2880SPX in the fall, and placed most of that cash into TLT. Since that time, TLT has earned about 17% whereas the SPX is now about 3% higher than where I initially raised cash. Should the market prove the break-out sooner rather than later, I will likely take that money and put it back into the market for the rally to 3800+.

But, for now, I am still expecting a much bigger decline as we look out into the coming months. And, now you have my larger degree expectations and guideposts. For more specifics, you will have to join me in The Market Pinball Wizard, as the market usually provides early indications as to its next larger move well beyond the general guideposts.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.