Lars von Thienen is on the FSC Board and hosts Market Cycles Report, a weekly program on Mondays at noon ET. This is a repost from his Substack newsletter, Beyond Stock Market Cycles.
This article does not comment on the latest financial chatter from the mainstream media and financial analysts. One gets the feeling that media and financial analysts currently have no answer to anything at the moment.
This post will deal solely with dynamic time-cycle analysis.
Recap:
Mid-March has always been the predicted window of opportunity for the cycles to move from a short upward phase (that began in late December) into the bearish camp. This update, based on the latest data, is not a fundamentally new forecast. It is a confirmation of the cycles already shown. Knowledge of previous analyses is helpful, so here is a short summary from the February update:
“The final low may not yet have been reached […] short-term daily cycles have exceeded their positive momentum […] by March at the latest, daily cycles are turning negative […] The technical cycle-tuned indicators are showing sell signals. The period until March could thus usher in a further downward movement.”
Securing any long position from that day (Feb. 12) was already the right decision to no longer ride the upswing.
What’s next? Here is the most important bottom line of the time cycles ahead of us into late summer: We are reaching the next point where a confluence of long-term and daily cycles in downward phases will be the predominant condition.
Let’s get back to the cycles analysis desk and review the current time cycles status.
Technical chart update
First, I will start with the technical situation using my two favorite cyclic-tuned technical indicators. I highlighted in the February post that it is the second time since the major top in Nov. 2021 that a sell signal was issued based on the long-term cycle. These are very rare situations. This signal from Feb. is updated below and still valid. The cyclic momentum also made a top in the lower panel and is turning down now. The technical situation has now room for the price to move lower until the next signal will be issued.
Chart 1 (click chart to enlarge): S&P 500 Index with cyclic-tuned RSI (dominant cycle length: 270) and cycle momentum (bottom pane)
Daily SPX cycles update
The S&P 500 index cycles have now both switched to their negative downward phases. They are starting to turn down now as anticipated in previous updates.
Chart 2 (click chart to enlarge): S&P500 with two dominant daily cycles composite model
Apple composite cycle model update
Because we used Apple as a proxy to monitor cycles in the tech sector, let’s review the current state. Since mid 2022, this model helped us project the bottom at the end of 2022 and the upswing in January. Previous projections predicted the top in March. Is this still the case using the latest price data?
The composite cycle top projection has not changed from our earlier composite models. It’s still projecting down into late summer.
Chart 3 (click chart to enlarge): Apple price chart with daily composite cycles model
Financial stress composite sentiment cycle
We also follow the weekly long-term cycles model. The long-term SPX model is still waiting for the major bottom to arrive. So, let’s use another weekly data series for a long-term update. I like the St. Louis Financial Stress Index as a kind of sentiment index on a weekly time scale.
This is the St. Louis Fed Financial Stress Index with cycles analysis and composite cycles model overlay, using dominant 192- and 54-week cycles. Cycles extreme turning points correlate to major market turns (extreme sentiment stress top = market bottom and vice versa). Now in approaching final topping sentiment stress window due late summer (first top) or early April 2024 (second top). (Reading = financial market bottom late summer or early 2024.)
Chart 4 (click chart to enlarge): St. Louis Financial Stress Index composite cycle model (weekly)
SPX vs. financial stress composite sentiment cycle
If we overlay the inverted cycles model from this dataset with the S&P weekly price series, we can observe nice correlation in changes in trend in the S&P weekly data at the turning points of the composite financial stress model.
Here is a composite cycles model taken from analyzing the St. Louis Fed Financial Stress Index (see above) mapped as inverted indicator shown at the bottom of the weekly SPX. It’s projecting a major sentiment cycles top (hint: shown inverted as low) starting July 2023 to April 2024. So, expect a cycles sentiment stress top in late summer 2023/early 2024, which should correlate with a low in major global markets.
Chart 4 (click chart to enlarge): S&P500 weekly with inverted St. Louis financial stress composite cycle model (weekly)
VIX index dominant daily cycle and S&P500 price index
Last but not least, here is a more complex chart. Analyzing the VIX index, we get a ~160 dominant daily cycle. The VIX acts inverse to the S&P price series, meaning that bottoms in the VIX correlate to price tops in the S&P and vice versa. This chart shows the inverted VIX and inverse dominant cycle on top and the S&P chart with highlighted cycle legs at the bottom.
This volatility, or “fear” cycle, has a nice rhythm with the price series, also shows that the current cycle phase is giving a downward cycle to the price series.
In addition to that, we know that the generic character of the market changed since November 2021 from a bull to a bear market. We saw this in the long-term cycles model. We now need to pay more attention to the “cycles within cycles” synchronization. This means that since November 2021, we should look out for cycles downward phases. You can see that until November 2021, the upward swings have been more valid as we have been in the bull long-term cycles since then. Finally, this adds up to another downward cycle to the mix.
