Inter Market Cycle Review
After all the sick news sourced from Europe, Banks, Libor and China so far Mr Market does not care. Sure we all fed (pun not intended) up, but after a quick clearance, Mr Market is back to normal and in rally mode (upwards is the path of least resistance). Let's review some intermarket cycles to get a feel of what is coming next.
Cycles that are based on the inner workings of major indexes can give a heads up on where their masters will go. For example, the SOX (Semiconductors Index) leads the NASDAQ. The SOX is at another major bottom, and the cycle suggests an upswing is due. We can not act on the cycle alone, we must wait for price action to confirm the SOX still wants to be bound to the dominant cycle and head higher.
At the moment the SOX is still bullish.
Another important economic indicator is crude oil, (DBO Etf), and that too is at a cycle bottom.
However the Stock market does not go anywhere with out the financial stocks (XLF, BANK). The cycle on the NASDAQ Banking index looks like it's peaked, for stocks to go up then NASAQ BANK Index must hold its gains beyond the cycle peak. Once again we must watch price action to confirm this to be so.
A good bull or bear indicator is the US dollar (UUP Etf), recently is has been working higher from it's cycle bottom, but its not exploded higher its been a laggard to the dominate cycle (which is bullish for stocks), however it is still heading higher (bearish for stocks). If UUP fails to travel with the dominant cycle then this will cause a cycle inversion which is very bullish for stocks.
It is a US election year, and this means a bias must be given to the bull camp. Money printing (QE) is alive as well, plus Mr Market is range bound (SP500 1275 to 1425) waiting for the next QE injection, however the stock market may have to test the lower end of the range before the next round of QE to approved.
The above non directional statement is supported by the lack luster volume in the SP500 etf known as SPY.
Its tricky out there, take care!