Phases & Cycles Market Outlook - May 19, 2021
Our last Market Comment was titled “A Market Holiday”, since there was hardly any change in the Indices. The most recent week showed the opposite: two down-days, followed by two up-days that almost recovered the decline, but a decline for the week nevertheless. The table below shows the details: the Monday to Wednesday losses in points and percentages, the Thursday to Friday gains in points and percentages and the loss for the week in points and percentages for the S&P 500 (SPX), the NASDAQ (NASD) and the S&P/TSX (Toronto) Indices.
It seems that Toronto was the over-all winner, which is not surprising, Toronto often outperforms N.Y. in the second half of the Bull market.
The statistics for the NASD would have been even worse, had we measured its decline from April 29th, in which case the numbers and percentages would have shown a drop of 1,051 or -7.5%; and a total loss of 658 points or 4.6%.
We have been suggesting a weak May (“sell in May”), but did not expect the majority of weakness to come from the NASDAQ stocks. The damage was not from the FAANG stocks, but the Health Care, Semiconductors and I.T. sectors, some of which were down 30- 40%.
The Monday-Wednesday 4-5% dip immediately brought out the Bears; a well-known hedge fund manager declared that the bull-market is over; another suggested that not only is the market over-bought, but it is in the “Twilight Zone”, while a newsletter-writer suggested to sell all stocks and buy bonds instead.
OUTLOOK
The current activity suggests that the sell-off and the upward correction were two legs of a three-legged correction pattern (A-B-C). Using the SPX as a proxy and starting on May 7th, the Index declined from 4,238 to 4,057 (A) and reversed to 4,183 (B) by last Friday. The third part started this Monday (and continues today) to complete the A-B-C pattern. The decline could approach 3,970 in N.Y. and 18,600 in Toronto; both targets were mentioned in our last Market Comment. Once this pattern is completed, most likely by mid-June, a “summer-rally” could lift the market till September, just before the next A-B-C pattern brings us to the last low for the year in late October, all within an ongoing Bull Market. Obviously we will check the progress week-by-week to catch any deviations.
Having completed the A and B part of an A-B-C pattern, the market is heading to complete the final (C) part by mid-June.
PAC-20-198; MKT-501; May 19, 2021
Ron Meisels
Phases & Cycles Inc., 4000 Boul. De Maisonneuve West, Suite 2010, Montreal, QC, H3Z 1J9
Tel.: (514) 393-3653. E-mail: RonMeisels@phases-cycles.com
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