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“What has been will be again. There is nothing new under the sun.” Ecclesiastes 1:91
“What happens today has happened before and will happen again.” Livermore
“Rather than love, money, or fame, give me the truth.” Henry David Thoreau
“Excesses in one direction will lead to an opposite excess in the other direction.” Robert Farrell
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Tracking Account Valuation- 3,041,444
Intermediate-Term: ~ Downtrend
LOLR Trend: ~ Downtrend
Open Positions: 15% TZA, 20% SPXU, 10% SQQQ, 5% UVIX, 5% VXX, 45% Cash
Stops: TZA – 24.92
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Monday 10:00
Daily LOLR STS
Down Up Up
4/3 5/2 4/3
Breadth: 1140/828
NYMO: +48 Rising Intraday
NAMO: +18 Rising Intraday
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The collective mindset, or “crowd-think,” as termed by Gustave Le Bon, refers to the majority who tend to surrender their individuality and submit to the collective thought process. These individuals accept the collective wisdom that entities such as the Federal Reserve, inflation rates, income levels, and the most recent technological advancements will dictate the stock market’s TREND in the upcoming month, quarter, or perhaps even years. They frequently approach the forthcoming month or half-year through the prior month or half-year perspective.
However, upon close analysis, the driving forces behind all market trends since the advent of humanity have been and remain threefold: cyclical patterns, market sentiment (or collective psychology), and momentum. Trends are akin to the tides and waves in an ocean. While there may be sporadic ripples against the current and individual waves, the tide, not the daily or weekly news, ascertains the market’s direction in the subsequent months, quarters, and years.
Let’s delve into the current implications of these factors.
I. CYCLES: Major bear markets typically consist of five waves, substantiated by historical data spanning the last century. For instance, during 1929-32, the DJIA underwent a drastic plunge of 90% over three years in a five-wave bear market. It is crucial to note that despite having several advances exceeding 20%, Waves 2 and 4, which might have been labeled as “Bull Markets” by today’s standards, were indeed not Bull Markets. Even sub-waves within Waves Three and Five exceeded 20% advances. To call those sub-waves “Bull Markets” would be laughable.
Similar patterns can be observed during 1937-1938, 1973-1974, 2000-2002, and 2007-2008, with substantial decreases in the SPX. Again, despite sizable advances, the so-called “Bull Markets” were merely waves within the overarching bear market.:
The five Waves of 1973-1974 took SPX down some 50%:
The five waves of the 2000-2002 Primary Bear Market again took SPX down about 50%. Again notice that today’s labels would have identified Waves 2 and 4 as individual Bull Markets (each more than 20%). To call those “Bull Markets” would be absurd- they were just waves in the Primary Bear Market.
The five-wave Bear Market of 2007-2008 took SPX down nearly 60%. Please note again that using today’s careless language, Waves 2 and 4 would be labeled “Bull Markets,” which, of course, were NOT!
As for the present, we perceive the first two waves of the 2022-2024 Primary Bear Market, where Wave One has led to a 27% decline in the SPX. Below is how we see the first two waves of the 2022-2024 Primary Bear Market. Wave One took SPX down 27% thus far. Wave Two brought it back up by about 26%.
Wave Two has been inaccurately labeled a “Bull Market” by many market participants.
II. Psychology (Sentiment):
At this juncture, every sentiment index indicates the psychology of a market peak. The specifics of these numbers and their implications won’t be expanded upon presently, but a detailed discussion will be offered in the ensuing days.
III. MOMENTUM.
Of the three elements (Cycles, Sentiment, and Momentum), momentum stands out as the most compelling. The reason behind this will be elucidated.
External (price) follows Internal (breadth) like night follows day. The McClellan Oscillator, portrayed in the second frame, is a robust tool for gauging the ongoing market BREADTH.
The Market Enjoys A Robust Tailwind when NYMO (New York McClellan Oscillator) ventures deep into positive territory over a sustained period. Conversely, the Market Faces A Stiff Headwind when NYMO descends into negative territory for a prolonged period.
Let us carefully examine the chart below:
SPX is at a new high for 2023. Now let’s look at NYMO. NYMO has spent most of the last 2.5 months below zero. It has only had 18 sessions above zero- the rest were underwater.
SPX has struggled against negative momentum for most of the last two and a half months and barely managed to get to +45 on this final retest of the buying climax of early June.
Its momentum is depleted, suggesting a looming decline. This hypothesis is supported by comparing the pattern of SPX versus NYMO with the scenario at the onset of 2022 when the bear market began.
In light of these observations, we anticipate the commencement of Wave Three in the immediate future.
We will examine the stock futures at 9:15 AM Wednesday.
Please stay safe as we celebrate Independence Day.
We Update Intraday Breadth and NYMO Data Several Times Daily @sevensentinels on Twitter. This data is free to anyone who may wish to follow us there.
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