It seems that the euphoria of the best times on the market is back but…

the dangers are many and are well explained in the comment below.

Just look at Apple: it has risen vertically since June (the rebound we took when exiting at the end of last week) but it is evident that the resistance combined with the overbought and the wave that looks like a 2 suggest extreme caution.

 

 

 

I reduced the tech exposure to zero and left the cash ready for the opportunities that will come in a few weeks
I remain consistent with my strategy that made me grasp the rebound since June and which sees – according to GANN – a possible top around 23 August (the sensitive dates were 8 and 23 August as I had reported)
The reasons why it makes more sense to be cautious are well explained below: I agree with them all

Covid caused an unprecedented shock to the system with the supply chain breaking down while demand exploded with the government giving out free money. It was a perfect storm for many companies. Not just the public companies but many private companies experience the same effects with strong demand and lack of supply resulting in the ability to raise prices on the consumer that continued to pay up. We now have inflation in the 8% range, and consumers are pulling back.

There have been a lot of dire earnings warnings in recent months with common issues. Earnings are slowing and inventories are elevated. WMT and TGT have guided down several times, taking down the rest of 2022 and 2023. Inventories are very high at other retailers, and companies have marked down this inventory to move it out of the stores, causing margin guidance also to get taken down hard. A few key semiconductor companies have also guided down significantly with high inventories. The equity markets seem to be in Pollyanna mode as these stocks are now higher than when they guided down, ignoring the bad news and hoping for better news in the future. I find this troubling and dangerous.

The supply chains have improved, but some still have not healed. Today China reported some really bad data about its economy. Notably, China’s factory orders have been declining. This isn’t just about Covid lockdowns in China causing demand to drop domestically, it’s also new orders from Europe and the US. The Pollyanna might say this doesn’t matter, and it reminds me of the scene from the movie This is Spinal Tap when the band’s Boston shows are canceled, and the tour manager tells the band that “Boston isn’t really a college town.” China is the major exporter that is seeing orders slow dramatically due to the high inflation hitting consumers and high inventories.

Declines of 30%? Clients looking to clear inventories instead of ordering new products? Demand is even lower than pre-pandemic. Panicking?

Inventories are up 25% heading into the holiday season.

And it’s not just happening in China. The Empire Manufacturing Index for August collapsed to -31.3, far below the consensus of +5 and down from +11 in July. The August slump was the second largest monthly decline in the index on record, and -31.3 was among the lowest levels in the survey’s history. The new orders index dropped thirty-six points to -29.6, and the shipments index plummeted nearly fifty points to -24.1, indicating a sharp decline in both orders and shipments. Looking ahead, firms did not expect much improvement in business conditions over the next six months. The inflation details were mixed (not as encouraging as in July) – the prices paid index moved lower, and the prices received index held steady. In a sign of easing supply chain strains, the delivery times index declined to around zero, indicating that delivery times held steady in the first month they have not lengthened in nearly two years. Bottom Line: This Empire survey is a net negative as it points to a sharp softening in growth momentum but stubborn inflation readings as prices paid moved lower, but prices received held steady in August. Thanks, Vital Knowledge.

The market has risen more than I expected, reminding me of 2000 top with S&P dropping ~50% from the highs and the Nasdaq 100 dropping ~77%. There were a lot of bear market rallies some rather significant, over several years. It started to be felt when companies in September 2000 started giving very weak guidance, especially within the tech sector. The Q2 2000 earnings also had “better than feared” earnings which gave way to “worse than expected.” Look at this chart specifically at the Q2-Q3 bounce that failed after many hoped the bull market was back. The NDX did not see the Q3 bounce peak at ~4000 for 13 years.

This bounce has a lot of FOMO optimism despite the Fed aggressively hiking rates and doubling QT next month to combat the highest inflation in decades. Fed hikes tend to take time for the markets to notice. It took several years after Janet Yellen started the baby step 25bps hikes. Powell’s last 25bps hike was considered a “policy mistake” after the repo market had imploded several months earlier. Nothing has broken in this market… yet. Unemployment is at 3.5%, S&P estimates have not come down, and financial conditions are hardly tight. The Fed has plenty of cover to continue to raise rates, increase QT and, importantly, wait and do nothing until inflation declines. The hope for rate cuts is delusional whenever there is a weaker economic data point. I didn’t hear a lot of chatter about how the Fed will pivot after the Empire report. The bad news is good and better than feared hope trade will soon get a taste of reality.

Today’s action doesn’t have broad strength as seen last week, with breadth flat. The volumes are typical for summer days; sellers are essentially absent. Shorts are not being squeezed as last week, and with fewer shorts, the risks remain lower to cover, combined with heavy speculative call buying.

 

 

GANN FORECAST

 

Introduction

I often tweet about upcoming seasonal dates. There is one upcoming Aug 23rd, that is less often recognized as a seasonal date. In his Stock Market Course W.D. Gann mentioned this date in the section on the Monthly Changes.

“The seasonal changes or monthly changes based on the beginning of any seasonal changes are important to watch for tops and bottoms. August 23rd is 240° from December 22nd.” W.D. Gann – Stock Market Course

W.D. Gann is right about this Aug 23rd date that around this date you should watch for a change in trend. 137 years of Stock Market Data seem to confirms this.

However, this year I would add 240 Solar degrees from crest 2022 (Jan 5th 2022), which brings you to early September for a probable seasonal change. Depending if history repeats. The 20 and 60-year cycle made a high around this date. The 49/50-year cycle may spoil all this and drag the indices even into further heights, right into early October 2022.

The decennial pattern, a composite of all cycles with year ending on a 2 makes a high right on Aug 23rd and the seasonal cycle (a composite of all cycles) on 137 years of data just a week later. These are all averages and the pattern here is more important than the amplitude. The analysis shows the seasonality that W.D. Gann discussed in his Stock Market Course does exists.

It is getting boring but last week the main US Stock Market during last week kept on following the Gann Master Cycles for the DJIA, S&P500 and the Nasdaq Composite. We expect the current rebound from June 2022 may not be over yet and the stock market may be trading a wall of worry into mid of August – mid of September 2022. There is volatility ahead we discuss in this week’s newsletter as well. Be careful out there.

 

We updated the S&P 100 stocks that are expecting cyclical turns in the next few weeks as well.

Hypothetical or simulated performance based on past cycles have many limitations. Cycles can contract, extend and invert. Anomalies can occur. Hence, past performance is no guarantee for the future. No advice. Read our disclaimer.

Looking back

Looking back I have added the 20-year (dotted blue), 49-year (dotted black) and 60-year cycles (solid green). You can clearly see from below chart that the DJIA is still following the 60 year cycle closest. The 49-year cycle is a good contender.

The 20-year cycle made a lower low, but aligns with the 20-year projections on August 23rd 2022. They further project a low into early to mid October 2022. The 49-year cycle however made a low end of August, a high end of October.

As many planets are retrograde I see also a return of Pluto (8 September) to the same degree as on the crest of Jan 5th 2022. I see also a return of Jupiter, returning to the same degree as on the low on June 17th. Longer term I see, Mars having revolved 48 times from the low of July 8th 1932. My bias is that the DJIA will see a change of trend around that return date (8/10 September 2022).

This is consistent with the planetary and cycle view I posted last week. You can see the update of this chart below. I am using the Helio view here.

Currently the DJIA is at the Fibonacci 161.8% extension price level. I expect this to be an Elliott Wave 3 or ALT Wave C of some degree.

DJIA – Gann Master Cycle

The DJIA followed the Gann Master Cycle quite closely last week. The Gann Master Cycle is not expected to make a high before August 23rd 2022.

S&P 500 – Gann Master Cycle

Same story for the SPX. The Gann Master Cycle is not expected to make a high before August 22nd 2022 in the S&P 500.

From a planetary perspective, I am using the Helio view here as well, see below update.

Currently, the SPX is at some sort of resistance, formed by a Saturn planetary line. I expect this to be an Elliott Wave 3 or ALT Wave C of some degree. I do not expect the index to cross this resistance easily. If it does it opens perspective for even higher price levels going into early September 2022.

$Nasdaq Composite – Gann Master Cycle

The Nasdaq Composite is still trading along the 49 year cycle as you can see in below chart. This time a weekly chart. This is an ugly view of what is possible if the 49 year cycle is active and continues on its downtrend. Probably heading back to the COVID Lows of 2020.

The Nasdaq composite made a high 49 years ago. We had an oil crisis and a recession from 1973-1974. It was the start of many high tech companies, and after 49 years you could expect a correction of some sort with similar circumstances.

We may have had the 49/50 year cycle low back in March 2022 (49/50 years from start Nasdaq; similar to 1842, 49/50 years after start NYSE), but the correlation with the market and economical circumstances is too high to ignore this cycle may make a second low.

From a planetary perspective, I am using the Helio view here as well, see below update.

Currently, the Nasdaq is at a 200% Fibonacci extension level that may act as resistance. The Index is also close to a 90 degrees Saturn planetary line. I expect this to be an Elliott Wave 3 or ALT Wave C of some degree. I do not expect the index to cross this resistance easily. If it does it opens perspective for even higher price levels going into early September 2022.

Planetary aspects to watch

In the above charts with the planetary lines (Helio view) I used mainly the lines that are formed by the conjunction and opposition. I used Mercury, Venus, Mars, Jupiter and Saturn not to clutter the charts too much. You can image that half way between the opposition and conjunction you have the 90 degree line (as drawn in for the Nasdaq). That may act as support and resistance as well.

Planets Retrograde (Rx)

At the end of August Uranus August 24th will turn Retrograde and Mercury will turn Retrograde on September 10th. With Pluto, Saturn and Neptune already retrograde there are 5 planets retrograde by early September 2022. This may have a weight on the market and Uranus and Mercury going Rx may trigger the market to make a change in trend.

Planetary aspects (GEO) to watch in August are:

Mars conjunct Uranus (Aug 1st), Mars 90 Saturn (Aug 7th), Venus 180 Pluto (Aug 9th), Sun 90 Uranus (Aug 11th), Sun 180 Saturn (Aug 14th), Venus 90 Uranus (Aug 27th), Sun 90 Mars (Aug 27th), Venus 180 Saturn (Aug 28th) and Uranus turning Retrograde (Aug 24th 2022).

From a Helio point of view I am looking at:

Venus 90 Neptune (Aug 6th), Mercury 90 Pluto (Aug 6th), Uranus 90 Earth (Aug 8th) Venus 90 Jupiter (Aug 9th), Mercury 180 Uranus (Aug 12th), Mercury 90 Earth(Aug 14th), Mercury 90 Saturn (Aug 14th), Saturn conjunct Earth (Aug 14th), Venus 90 Mars (Aug 17th), Mercury 090 Neptune (Aug 26th), Venus 180 Pluto (Aug 27th), and Mercury 090 Jupiter (Aug 28th 2022)

All hard aspects and possible dates for a reversal in trend.

During last weeks I showed you there are a lot of planetary cycle intersections, cycle hot spots from a Helio perspective in the next few weeks that may hint for a change in trend or may act as a catalyser for a trend to get some steam. Below is the updated chart.

I expect the market to be volatile in the coming week because of the amount of intersection spikes I see in August.

Cyclical turns S&P 100 stocks

The following stock may be approaching cyclical turns in the next few weeks.

A lot of stocks recovered from recent lows and traded back above the 50 day moving average. However, 50% of the stocks in the S&P 100 still have a zero to neutral momentum.

This list may give you some ideas for further research and consideration. Some of the above stocks in this list may be currently overbought or oversold. It is no recommendation. Do your own research.

Conclusion

The DJIA and the S&P 500 Gann Master Cycle continues to project a higher high around August 23rd 2022, which is the cyclical high of the 60 year Gann Master Cycle. The cycle may extent into early to mid September 2022 ultimately after which a downtrend into October is to be expected. Planetary lines seem to support this.

We will have to see where the market will turn as cycles can deviate up to 1/6 of its nominal length. The Nasdaq 49 year cycles suggests a high in October 2022 before the Nasdaq continues its downtrend into 2023, but the index could well turn earlier alongside the DJIA and the SPX. Remember, cycles can contract, extend and invert. Anomalies can occur. So, watch the chart in front of you. Take care!