US Stock Market S&P 500 SPX & NDX - Trader & Investor Outlooks

[00:00:00] Speaker 1: We're going to look at the stock market, and we're going to look at a trader outlook first. Then I'll put the MCM up there, and we'll be able to look at our great market condition monitor, see how to use that. So we'll look at the S&P 500, the NASDAQ, and the BIX, multiple time frame analysis. And then we're going to switch over to an investor outlook, a little bit different than the way I normally do it, where, as I'm telling you right now, the trader outlook still is positive. And the investor outlook, well, there's a lot of caution in what I'm going to show you in that. So let's take a look here as we move forward and look at these different stocks. Let me move over here, and here is the S&P 500. What we're looking at is the weekly on the left and the daily on the right. What I'm going to bring you is a couple of different scenarios to show what I think is potentially going to happen in here. So our thought was that the stock market would turn over in here and have one more decline into August and September. Now, we talked about the beginning of the year that we thought there were three periods of decline, one over here, March, April, this one over here, I'm sorry, one over here, March, April, this one right over here, which was not very deep. And then another one into September right over there, which we thought was going to be probably the biggest downside for the year. Now, the market's trying to make me look at this in a different way, and I'm always going to be agnostic. I'm telling you that. You know, if something happens that looks like it's changing, you know, I'm not stuck with a bullish or bearish scenario. Whatever it's telling me is what the market is saying, and I'm going to look at that. Now, there is some potential that the declining phase right in here was handled in a rectangular shape right there, which would be a very bullish thing if that is the case. Now, I still contend that the period of risk takes you out into September and that there's a chance that this is called an upthrust. When you get up outside of the range, once it gets back into the range, the upthrust fails, and then you end up going into the corrective period. It tried to break at the bottom of the diamond in here, and you see could not, and came right back into the range and then broke out on the upside. Then when that happened, you can see the reversal scout turned up right over there. That is a bullish thing when that happens. So I'm giving you the potential that there is a bullish scenario here when you look at this on the weekly chart. Still, we have this period over here, and I'll show you that on the daily chart where the market could be pulling back. So we have to wait and see how that happens, if this upthrust actually holds or completely reverses, and if it would happen, it would happen starting in a few days. And I'll show you that looking at the daily chart right in here. So you can see the cyclic action right in here. It's just beautiful. You can see each of these bullish and bearish phases right in here. This low came just a day early and then moved up. So we were actually looking for the market to try to rally in here, but no way was I looking for the magnitude of this advance and the breakout. I just wasn't looking for it. I was looking for the diamond to potentially break on the downside, which it did not. And now you can see this actually quite a big rectangle in there that formed as it had a one, two cycles in there, actually three if you look at this one, where it was in the range. Now you're up here, and what we're looking at is the potential for getting up into this Fib extension range right over here. That's about 77, that's about 77.95. Let's just say 7,800. And that's about 78.75 right in there, where it could continue to come up right there. Now, then we would look for it to stall and get into this corrective phase right over here. That's where I'm talking about that up thrust potentially reversing once there's a peak right in here and then coming back down. If it gets into range again, it's not going to be a positive thing for that to happen. Now, let's just examine some scenarios that are in here that are possible. I always want to look at both sides of this. And if it turns out that, you know, the rectangle was the whole corrected period and now we're getting into a bullish period, then it would say to me that the formations then going forward would be positive. If you look right over here, we're going to look at the positive scenario right there and that would call for, you know, continuing to get up over here, then having some kind of a pullback and then moving to a higher high. And you can see how I'm following these cycle rhythms right in here. And because this was a higher high, it would have a higher bottom and then make another higher high. So I'm just using the information that we get off of the markets to be able to extrapolate from there and say, well, this is what a positive trade would look like. And if the, you know, the market pulled back in here and was, you know, holding above the top of the range, you would know that's probably a pretty good buying opportunity for the market to be moving up again. That scenario is in alignment with this weekly corrective period right in here, have actually having ended in this whole corrective period we're looking for out into September with a big decline. Well, that wouldn't happen because the market had proven that it only wanted to correct sideways possibility. I don't give that a lot of weight, but I have to give it some weight because of what we're seeing right now. Now, the other possibility is that this market is going to get into this period, August and September, and then that would give you some cyclic action that was different, that was more negative. So let's look at the negative scenario right over here, which is that the market fails in here, comes down, and then this rally over here does not get to a new high. That's going to give you some risk coming to the downside right over here. So that's, you know, important when you look at that. You know, the VIX pattern to me, and I'm going to show you the VIX, is telling me that there could be another few days of the market trying to get to the upside. And then that, let me just put up these, put up all my notations in there. And then moving up again, we're in this period right over here. This isn't particularly on the VIX, a bullish sign when you can get down here under 15 right over there. It's kind of choppy, but then potentially getting back up into the 2020 range or a little bit higher somewhere out over here. When I look at the daily VIX, it says to me, it's probably another few days in here that the market can hold up on the positive side. But then after that, this is where we get into the period where VIX could have another move to the upside there. So this is telling me, well, the rally that we're seeing in the market could potentially hold up for well into next week before it then begins to get into the period of riskiness again. So back to the S&P 500 and the negative scenario, for it to be that negative scenario, you would have to get this break in here and get down into that range again and then the next rally to fail. That would be telling me that the correction that we're looking for of some significance on the downside into September. That's this cycle right over here. You could see that bottom's mid-September. Then that would be where there's a lot of risk in the stock market. Right now, everything pointing upward. So you could see positive momentum here in the weekly. You can see the slim ribbon PO turning green right over there. You could see the option bias indicator saying keep your options biased to the long side. All of this right now is positive, and you would expect that on this breakout right over here. Now, what I'm going to show you now on the NASDAQ is different, and this is important for what I'm going to show you for the investor information coming forward. Now, you can see in here the NASDAQ had a significant break. This was about 11%, and this was in the time frame that we were expecting the third downside move of the year. But then you've got this big rebound right over there. So the downside move here, the question is, is it done? Well, I don't think so, actually. But still, it has to be proven, just as we said in the S&P 500. So, again, we're looking for this low out in September. Here's, you can see what's happened, and that is that it's still that this rally, this rising phase right over here, and projecting up over here, this is around $29,900. This is back up near those all-time highs, $30,600, $30,800 right in that area on the upside. We have to see if this can establish. Now, again, what we're looking at is short-term. This has turned neutral here, so it's not as strong. This has turned green, and we have this bullish occurrence here on the slim ribbon. All of this in the short-term is looking pretty positive when you look at that. But the intermediate dominant on the weekly is still negative. And you're going to see that reflected when I look at the MCM, which we're going to look at next. So, the NASDAQ is significantly weaker than we see in the S&P 500. Now, the Russell, the small caps is kind of in the middle. It didn't make it up to a new high. Let's switch over now and look at the MCM, the Market Condition Monitor, right over here. And what you can see as we look at the intermediate conditions right over here, that we have slightly bullish upturns here this week in the major indexes right over there. You can see here Apple happens to be neutral. And the QQQ is neutral right over there. No more the reason it's neutral is because you have positive conditions on the short-term, but you have negative conditions or mixed conditions on the longer-term, which is dominant. So, it's neutral right now. And you're seeing that when you look at the chart is it can't make a new high. When you look at the short-term right over here, then you can see all of them are bullish. They all turned bullish this week, as I showed you right on the chart. So, if you wanted to get notified on these right over there, you could just click notify. You know, I want to know when this moves to back from bullish down to neutral right over there. And now it will just pop up on my screen and tell me when it switches to neutral, when it does show me some failure in there. And you have to download our notification app in order to do that. And if you need help with that, you can write to our team. So, this is the MCM. So, you could see it's improved a little bit on the short-term. Intermediate term, you're still seeing that weakness right over there in the QQQ. You want to, for our level three and four members, you can look in here at all of the stocks and hear there's hundreds of them to be able to see them and to be notified when things change in them. It's really a great way to monitor the potential trades as you approach your trading in the markets. So, I wanted to show you that, the MCM. I wanted to show you the multiple views at what I think we're seeing in there. And the key important thing, and I'm going to show you this to you as we move forward, as I take a look now at the investor view. So, this is the trader outlook that we looked at right over there. And you could see that, you know, what we saw was that the short-term outlook right now is still looking positive with some caveats in there that the intermediate cyclical patterns suggest there still could be that period of risk where the market pulls back in some sharp way into September. So, that's a look at the short-term or the trader outlook there. And we're going to move on. I showed you the MCM. Now, we're going to talk about the investor outlook. We're going to look at the S&P 500 monthly investor sentiment and the 2,000 peak indexes to do some comparisons when we look at that. So, the first thing I'm going to do is I'm going to bring in the monthly S&P chart right over here. Now, this is fascinating when you look at this because I'm going all the way back here to, you know, 1999. So, we're looking at the last 27 years right here. And look at the remarkable cyclic action. You could see on the bottom are the cycle brackets and show you the harmonics in there. And where you see these three vertical timelines right over there is where three cycles are nesting on there. And that shows you the periods where it's likely that bear markets will end. In other words, they sell right into those nesting areas. Now, boom, bear markets start, you know, with some variation of time. It's rarely less than about nine months. So, you know, if I'm looking for a bear market low somewhere, then nine months from there or these started 24 months in advance. That's 24 months here in 2000. This was 17 months here of a bear market in 2007 to nine. This one was nine months right there. This one was 10 months and you could see the amount of decline into those periods. So, you know, of course, 51%, 58%. This was a mini bear. Depending on which index, it was 16 to 21% down right over there, 27% down over there. And then there are intermediate periods where the market has pullbacks. And those tend to be less severe because the upside momentum keeps them from being severe. So, if I just look at this period right in here that we're in right now, you can see that the stock market is rising. There was even, you know, there was no moment in here since the pandemic when our, you know, indicator, the reversal scout, said anything but being positive. We had that question earlier in the show, what's my favorite indicator, but this is not giving you any reason to believe that the market has paused. Now, this is, when you look at a monthly chart, it's very lagging. You need to look at shorter term charts in order to fine tune that. And there's several things that I want to talk about because the market looks strong. I'm showing you in the short term that everything still looks like a turn back up and is positive, except for the lagging NASDAQ that we're looking at. And, of course, we have conditions of extreme overvaluation like we have never seen. Now, with January 1st of this year, it was extreme with the Buffett indicator at 224, the Cape Schiller at 40.7. Here is now at 232 and 42.2, the readings right now. These are so far beyond what we saw at other bull market peaks. It's not even comprehensible, except for the fact that they're pricing in some earnings or economic growth that none of us know about yet. Maybe AI is a paradigm shift. We don't really know that, but they're pricing that in. That certainly is the case. And, of course, a lot of these earnings that you're seeing are from the circular investing that we have, where they're all investing in each other and all buying from each other. And that boosts the earnings potential. But AI is part of the technology world, and technology is always cyclical, and stuff gets commoditized. And before it gets commoditized, there's indications of that, and the prices then collapse. That's what we saw in 2000 happen. And the NASDAQ never recovered from that for years after that. So bullish right over here when you look at the monthly. This has not changed. It's been that way. It is at extremes right now. So that said, looking at the monthly, I want to make some other important points right over here. Because when I looked at the short-term trader type of analysis and those projections, they're looking at momentum. You know, anything can happen in the short term, no matter what the longer-term situation says. In this case, this is still positive looking at that. There's no reason to say anything other than that, unless the short-term gives you some indication that something has changed. Now, let's look at something here. This is the Bank of America bull bear sentiment indicator. This is at 9.7%. Now, anytime it's gotten up to these areas, the stock market has been in huge trouble. And you've had very significant pullbacks from that. You could see the peak here where it got up over here in 06, of course, and came all the way down in through 08. Here we're at huge level of investor sentiment. What does that mean? At 9.7%, investors are fully committed. I mean, they've spent the money. They're ready for the market to keep going up. And that's why the sentiment is there, because they're in. Last week, I reported investor cash flow. Investor cash was at a record low, 3.6%. That's not investor. It's actually money manager levels of cash. So you have money managers all in. You have investors all in and fully committed with the sentiment being very positive at conditions of valuation metrics that we've never seen before. This is a setup for trouble when you look at that. Because there's so much that is already in place on the upside, what's left to buy? Where are they going to get the bullets for it? Yes, they can get a breakout like we had in this week and push it up very quickly. Then the question is, is the energy there or the fuel to keep it going? One more note I have in the bottom. [00:19:07] Speaker ?: One more note I have in the bottom. [00:19:08] Speaker 1: 2026 is different. How is it different? Well, there is $12 trillion in equity derivatives, plus $200 billion in leveraged ETFs that can force a cascading selling when this turns down. Ordinary decline can be very sharp and it's self-reinforcing downturns. This is a caution I'm giving you because the money may not be there to push this market up very far. And the setup is for declines to be very sharp. I say that telling you that we don't have any indicator that it is starting, that anything like that is starting yet. Now, let's quickly look back at this 2000 period that I referred to. It was huge swings as the market made its top. And it took many, many months. This was like a five-month top that developed. You can see that, you know, it came down just like we were in this range this year. And this year went up, tested the highs, and then started to chop around and come down. Now, this is the S&P 500. This is the NASDAQ. And you can see that the NASDAQ, which started to fall, and then because the pricing got crazy, couldn't recover to a new high. This is what we're seeing going on now. So maybe the NASDAQ gets up and tests the high. I don't really know whether it's going to, but it is weaker. I'm not telling you that the NASDAQ is going to lose 80% of its value like it did in this bear market. What I am telling you is that there are things to look at and say, well, there's a similarity here that may be valuable because if the NASDAQ stocks, the AI, got very overpriced and then started to correct in a sharp way, then maybe they're leading the way in a correction or a bear market that the rest of the market didn't figure out yet. But, you know, when you look over here and you see what happened is that what happened was that there was a big rotation. Like the rotation we're seeing now, S&P 500 stocks continuing to get bought. Every time you went down, they came back in, find different things to buy, but they weren't buying the techs. You could see that in here because the techs got very weak. This is a similar scenario to what we're seeing right now. So for investors, there's a reason for caution, S&P 500 monthly, still rising, positive, intermediate, still rising, positive, short term, giving you all the positive indicators. Until that changes, there's no top. However, when you look at valuation metrics at extreme, I think the coming bear, well, there's no sign of it at all yet. But when it comes, you're going to be able to tell because I think the derivatives will give very sharp declines as they implode on each other, essentially, because there's so many things connected here on the bull side. And I think that's going to turn out to bring some pretty sharp declines. I would not be surprised to see some regularity of 2% or 3% down days when this peak does come. Right now, it's still not there. So I don't want to tell you that I'm expecting it now. I'm just telling you, caution is warranted. That 2000 peak is a valuable comparison. There are similarities right now to what we saw back then. And I think it's something to pay attention to. That is the stock market investor outlook, and I think caution is warranted.