Market Timing and Price Projections

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Table of Contents

• Introduction

• Cycles Update

• Major Indexes Cycle Price Projections and EW Count …

• VIX Update

• Annex 1- Bonds: TLT and TNX

• Annex 2- Forex: DXY and EURUSD

• Annex 3- Where is Bitcoin Going?

Introduction

The Santa Rally came early this year. Will it end early also? Last weekend I speculated that we might see grinding higher this week and may not have a traditional Santa Rally (the last 5 days of the year and the first 2-3 trading days of the new year). Overall, the sentiment, technical indicators, cycles, and EW counts suggest the stock market is about to top soon. There is no much more fuel in the bullish tank. Another excessively long report but I think considering the situation in various market it is justified.

• The intermediate-term Optix is shown in Figure 1;

• Optix is a sentiment indicator that includes: put/call ratios, mutual fund flows, futures traders positioning, sentiment surveys, price ratios, etc.

• It could be seen that Optix reached July’s level and exceeded all other peaks since 2000;

• Such an extreme value is very bearish if SPX is still in a bear market but it is normal/OK is a new bull market is starting. I think that the probability of the latter is small;

  o Note that the sentiment indicators are not short-term timing signals but rather descriptive of the state of the market. However when in the extreme territory one could take a contrarian stance, in a proper context.

• Lately we have reviewed several technical indicators for SPX, arguing that it is “Running on Fumes”;

• Figure 2 shows updated MFI vs SPX, exhibiting a significant negative divergence. I identified several similar instances, always leading to corrections. Though there are also cases when MFI peaks coincidentally with SPX, but that case is of no interest here;

• SPX/VIX ratio is at historic highs. Extremes in this ratio usually precede significant corrections but could be early by several days/weeks, as illustrated a week ago on a weekly chart.

• NYSE Volume Adv/Dec line is strongly diverging relative to SPX!

• NYSE McClellan Oscillator is also negatively diverging relative to SPX!

• The technical picture is negative.

• Overall, the longer-term picture is bearish, but in the shorter term, there is still potential for slightly higher, rallying on the fumes (low volume and weak A/D line), but supported by cycles, EW counts, and seasonality, but not much longer, in my opinion.

• Although the stock market indexes may make one more down-up sequence, I think the game should switch from buying the dip (BTD) and selling the rip (STR) to STR and raising cash as it is risky to chase that one last push higher because sometimes it does not occur (say due to a wave truncation)

Multiple cycles are expected to peak this week, suggesting a high of sorts. We will take a micro look further below.

EW counts of SPX, NDX, DJI, and RUT, are almost complete but ideally, most of them need one more down-up sequence. Cycle projections of NDX, SPX, and DJI are reached but for SPX and DJI they still allow higher within the target range. See Major Indexes section.

VIX is gently pushing higher despite SPX grinding higher, a sign of bottoming, though I would not be shocked to see an additional drop before really taking off.

In Annexes, we will provide updates on bonds, forex/USD, and Bitcoin.

Based on several different analyses that we looked at in the last few reports and today my conclusion for next 2-2.5 months is as follows:

• DXY/USD Up;

• Stock market Down;

• Bonds Down (yields Up);

• Gold Down;

• Crypto Down.

This list is certainly suggestive of a negative correlation between USD and other instruments on the list. But we need to be careful with correlations as they sometimes change, depending on how the economic/investment narrative changes.

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