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Our analysis, cycle and technical, and the weak seasonality period both suggest a down bias for the markets for the rest of this year. Also, long-term cycles and market fundamentals suggest negative market returns until the early 2030s. Our premium newsletters are chock full of insightful analysis. I strongly suggest trying them. They will be a priceless resource for capital preservation and growth for every investing style, especially for traders and people who actively manage their investments.
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Market Summary
We got the expected bounce on Thursday, but it was short-lived and reversed on Friday.
Some indexes/averages likely topped a couple of weeks ago, e.g., DJI and RUT. These two are at early January levels. SPX and NDX have not made much progress in two months, and on Friday, they fell below mid-February high.
There is still a possibility for NDX, and perhaps SPX, to make another attempt to a new high, or at least a bounce from not much lower than Friday levels. But one way or another, with or without a new high, everything points to down in the intermediate term.
Remember that I mentioned several times in the last 2-3 months that in an expected topping formation one should raise cash by selling the rips. Those who followed this strategy did well and got the prices above the present levels. This game scenario is still appropriate.
Repeat from before:
The short-term analysis is becoming more in line with the intermediate—and long-term analyses, which suggests a reversal is due. The lightning could strike unexpectedly around the tops.
My longer-term expectations do not change. I will repeat from the weekend report: “Despite the market's resiliency and FOMO, I expect a correction in the next 2-4 months, initially.
Market data as of close on 12 Apr. 2024.
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Sell in May & Go Away
Some people laugh at “Sell in May & Go Away.” I do not. . .
Over the last several weeks, we posted several times in our Premium Newsletter Cycle, topping formation in several market indexes. Several days ago, we posted the chart below for QQQ Hurst cycles, suggesting that QQQ likely peaked for the 20W, 40W, and 18M cycles.
Incidentally, this year, my cycle analysis using different methods estimates the market peak co-incidentally with a well-known seasonal cycle: “Sell In May & Gow Away,” also known as the Halloween Indicator. It was proposed by Norman Foshback in 1970, and it has been demonstrated to be one of the best seasonal patterns. More about its record a bit later below.
The chart below compares the SPX price this year (red) and the de-trended 70-year average of SPX (blue). Notably, SPX ignored the expected pullback into March, which was also predicted by the 20W cycle. Also, SPX might have started correction a couple of weeks earlier than predicted by the seasonality chart.
Keep in mind that these seasonality patterns do not work exactly and not every year, but they have an excellent record on average.
Jay Kaeppel, in his book Seasonal Stock Market Trends, presented a detailed analysis of the Sell In May and Go Away seasonal pattern.
Kaeppel analyzed the pattern with the following parameters:
1. Buy the Dow at the close of the last trading day of October.
2. Sell the Dow and move to cash at the close of trading on the third trading day in May of the following year.
The two charts below show cumulative investment returns for the positive and negative seasonality periods, respectively, from 1949 to 2006. I apologize for the copy quality, but the message is what matters.
In summary:
· The average cumulative annualized rate for the bullish period was 17.1%.
· A $1,000 investment during the bullish period grew to $82,666, while it shrunk to $847 during the bearish period.
· The Dow posted a gain during 47 out of 58 bullish periods, 81% of the time.
· The bullish period outperformed the subsequent bearish period 45 out of 58 times, 78% of the time.
Remember that this seasonality approach did not work every year but yielded excellent results in the long term.
Cycle Analysis of Major Indexes
Time cycles are pointing down for major indexes. Let’s revisit the most important one for the market now: NDX. The chart below shows the daily chart cycle composite for NDX. . .
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