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THE CYCLE TOP

|Includes: SPDR S&P 500 Trust ETF (SPY)

More and more people are speculating May 21st SPY was THE "Top" of the boom/bust cycle. There are a few different ways I have found to tell if this is true and a few correlation but not necessary causation signals as well. The big answer is maybe but very doubtful and honestly there is no way to know that answer for sure - yet.

Some things to keep in mind.

  1. Market cycles end and start in March/October. Not always but especially the last 2-3 cycles that has been the case. Why? Not sure, it just seems to happen that way. May 21st is not March.
  2. The stock market rises on the year unless we are in recession. Data going back to 1950 bares this out. There are 4 exceptions and all of them had extraneous causes - 1994 - Fed did a surprise interest rate hike, crushed stocks and bonds at the same time. 1977 - Oil shock/embargo plus Fed tightened (bears will point to this one, kinda similar). 1966 - Fed tightened credit big time. 1962 - In May they had the 1960's version of a flash crash that shook investor confidence. Now there is no evidence the US is in recession yet but if Fed tightens maybe March of 2016 is the better candidate for a Top. 1977 bares watching because of some similarity to this year but lets be honest there are no gas lines or other major happenings that would put the brakes on our economy right now.
  3. The first time the Fed tightens in a rate cycle the stock markets go nowhere for a long time. This happens time after time. In 2004 there was no new high in markets for 8 months! This is the big one Bears/Top callers miss. If there was no potential 1st interest rate hike and stocks did not hit new highs for 4-5 months I might start leaning in their camp but this is a known commodity - when Fed raises rates stocks stay down for a long time 6-8 months.

What would I need to see to get in the Bear/Market Top camp? GDP in the US accelerate to the downside, Fed raise rates/invert yield curve or more cycles of lower highs and lower lows especially if the Nov-Jan seasonality rally doesn't take hold. Then we have to pause and reassess but until then get long on extreme weakness and sell early on pops just in case.

Disclosure: I am/we are long TQQQ, UPRO.

Additional disclosure: Long for a bounce day. Expect new lows soon.