Sample- Market Timing and Price Projections

Table of Contents

Summary

I will not repeat what I said in the last few reports. Summarizing it, “Waiting for Godot,” that is, waiting for some kind of market top. The main indexes are very overbought by different measures and are due for a pullback. We expected the nominal 40D (N40D) cycle for SPX and NDX to peak by mid-last week, and it likely peaked on Wednesday, but do not have a strong confirmation yet. The N80D cycle is still pointing up but is due to peak in the next several days, followed by the peaking of the N20W cycle later. This suggests a ”battle” between these cycles, i.e. which one will prevail, which could lead to a complex topping formation, possibly, as often times happens at tops (taking their sweet time). The volatility, VIX, appears to be bottoming and readying for a move up, although VIX sometimes takes more time to reverse up than most people have patience for. We will also review the crypto status, which may be at an important inflection point, and share our expectations.

Introduction

My impression after scanning different sites is that people are either extremely bullish (breadth trust, break out from a bull flag (debatable flag), above key MAs, etc.) or extremely bearish (extremely overbought, recession is coming, this rally is typical short covering and FOMO, sentiment is back to Greed, etc.), just like last weekend. CNN Fear & Greed, see Figure 1 below, shows that the sentiment is deep in the greed range, but not yet at extremes to let us make purely contrarian bets without other considerations. But it is greedy enough to allow for a correction. Keep in mind, that the sentiment indicators are reflective of a condition, they are not short-term timing triggers.

It is notable that SPX is almost at July highs while different market breadth indicators are lagging significantly!

Figure 1 – CNN Fear & Greed Index.

I mentioned relatively weak market breadth indicators in view of strong SPX, and NDX, which usually does not bode well for the market, at least in the short- and intermediate-term, sometimes longer.

Figure 2 shows from the bottom to the top, SPX chart, RSI, and NYSE Adv/Dec line ($NYAD). A straight-up SPX move since late October brought the RSI into overbought territory, but no negative divergence yet (usually there is a negative RSI divergence at peaks but not always). Notably, $NYAD is significantly lagging creating a strong negative divergence. I marked several instances of similar negative divergences (with orange lines). In most instances, they occur at tops of sorts, but not always. Odds are, from this indicator, that SPX will correct at least in the short term.

Figure 2 – NYSE A/D line negative divergence relative to SPX.

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