Things played out pretty closely to my educated guess on June 9th. SPX corrected 1-2% and then rallied to new highs into end of quarter nearly hitting 1980 on July 1st and not much since. SPX sits at 1974 as I type. Only 12 points below its all-time high. However, it is VERY vulnerable to a 5-10% correction imminently.
1. The projection still stands for a mid-August 5-10% bottom due to my discretionary spending lag thesis. Unfortunately for bulls, spending is UGLY (way worse than portrayed in the news for sure...see consumer spending link on right). U.G.L.Y. You ain't got no alibi. You ugly. What. What. You ugly. Spending has stayed extremely low and slightly falling for 6+ months now without a bounce meaning this tool does not project a significant 8-10%+ bounce once the next significant bottom occurs. These bottoms typically last 5 calendar weeks which means the downtrend would start this week.
2. The late great Terry Laundry's T-Theory Confidence Indicator (FAGIX:VUSTX), which has been primarily bullish since 2009 except 2011, has now made its 3rd consecutive negative divergence in the last 6+ months coinciding with spending interestingly. Combined with the negative divergences against 2011 and 2000, we now have a long-term and short-term triple divergence. I mentioned that there was a pattern of huge downturns during similar divergences with this indicator in the past in 2000, 2004, 2007, 2011 and ?2014?.
3. The bearish stat is now stretched regarding bull markets setting all-time highs 10%+ above old highs like we have done since April 2013 when SPX surpassed 1576. They typically make a 50%+ correction of that old high starting about 1 year after the high was broken. We are now on month 15. I don't think any previous examples I pointed to going back to year 1900 lasted much if any longer than 15 months.
4. SPX-related technical indicators appear to be turning bearish. The short-term moving averages I follow are at 1968-1973, so slipping back below those would make my System's Score more bearish and be more supportive of a pullback. Also, there were plenty of negative divergence on the daily, weekly and monthly charts at the recent SPX highs. The TRIN moving average is low. VIX has diverged bullishly and now confirmed the breaking of its 5+ month downtrend.
In addition, the FOMC confirmed tapering into October and possible earlier tightening, there are bubbling global risks in Russia and the Middle East, there was a Bradley model turn date on July 16, we've yet to experience the typical summer swoon and GDP/inflation/housing/economics are concerning. Any and all of those things could be an excuse for a spark lower.
Having said all that, if SPX falls back below the 1968-1973 area and then breaks 1956, I think 1930ish is a good initial target with 1900-1920 offering more support. If we don't reach those targets until mid-August, that could be it. If we hit those targets earlier, we'll probably still get a 20-30pt bounce, but 1815 wouldn't be out of the question after that. Regardless, SPX is unlikely to move much if any higher based on the info above and should make a sizable bottom in mid-August. SPX is also not expected to bounce 8-10%+ from that low, so SPX may or may not make new highs into Sep/Oct depending on how low the August bottom is. Good fortune.
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