Phases & Cycles Market Outlook – May 06, 2021
In our last Market Comment we suggested that the oncoming “seasonal top” period (“sell in May”) may create a pause in the longrunning Bull market for the next two months. In anticipation of such change in direction, and to soften the blow, the market had a holiday last week. As the table below indicates, except for the VIX, there was hardly any change for the week.
Index Open Close Change
DJI 34,044 33,989 -0.002%
SPX 4,185 4,181 -0.001%
NASD 14,052 14,010 -0.003%
TSX 19,110 19,108 -0.000%
VIX 17.64 18.61 +0.055%
There was hardly any movement on Monday, Tuesday, or Wednesday; only Thursday had any excitement when, on the day after the State of the Union speech by President Biden, all indices had a roller-coaster ride: the SPX opened up by 36 points, then dropped 42 points near noon and ended 39 points higher for the day. Then the markets gave it all back on Friday. Among the 20 Most Active Stocks, there was only a plurality of three that ended higher for the week.
Despite the holiday mood and the slow activity during the anticipation of the start of May, there were some internal events to note. The DOW and the S&P 500 Index (SPX) completed a small “double top formation” as did the NASD and the Russell 2000. The Energy and Semiconductor sectors also had some weakness.
Technical signals still forecast an oncoming weak period: stocks above their 10-week Moving Averages (10wMA) are still above 65%, and even though the reading for the stocks above their 30wMA has declined from 81.3% to 78%, it is still a high reading. Furthermore, Bulls still outnumber Bears by 60.4 to 16.8 (courtesy of Investors Intelligence). As to the members of the AAII (American Association of Individual Investors), their bullishness has declined from an early April reading of 57% to a current 43% and their bearishness increased from 20 to 26 percent. My cyclical reading supports the potential for a minor consolidation, contrary to the Stock Traders’ Almanac, which points out that in “Post-election years Mays rank near the top”. But I don’t see a controversy, since a period of “sector rotation” would not drastically change the levels of the DOW or the SPX.
The minor “double top formation” is probably too small to be seen on the SPX chart on the following page, but it is heralding a weaker period. It could appear in the form of sharp declines, followed by sharp recoveries, but whatever form it will take the targets forecast in our last Market Comments are still valid:
The SPX is likely to revisit the bottom of the channel at 3950; and a similar decline for the TSX suggests a move towards 18,600.
PAC-20-198; MKT-501; May 06, 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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