As we observe the fluctuations in the stock market, intermediate cycles have been dropping significantly on our Forecast charts and are now reaching the lower reversal zone, something that hasn't happened since April.
Recent Market Movements
The S&P 500 has experienced a notable decline, giving back 6% in the three-week drop from the March 28th peak to the April 19th low. The current pullback from the July 16th peak has seen a similar drop, although there is still some room and time for the intermediate cycle to fall further.
Current projections suggest that the S&P 500 may bottom out this week, around August 8th. Meanwhile, projections for the Nasdaq indicate it could reach its low as early as today. However, even though the Nasdaq's intermediate cycle, as well as its short-term and momentum cycles, are already in the lower reversal zone, the decline may continue a bit longer.
Monitoring Long-Term Cycles
In addition to the intermediate cycle's bottoming, an important condition to monitor is whether the long-term cycles will remain in the upper reversal zone (above 60) this week. The long-term cycle peaked in July 2023 and then continued to decline into October. That decline, along with a falling intermediate cycle, created a sharper market decline and dampened the two intermediate rallies that occurred before the final October low.
For now, the current weakness in the long-term cycle is expected to be closer to this year's April 'dip' rather than last year's drop. This is because the Federal Reserve is on the cusp of lowering interest rates this year, in contrast to raising them as it did last year. A more muted drop in the long-term cycle would mean a stronger rebound for the intermediate cycles.
Confirming an Intermediate Reversal
It is critical to wait for a clear confirmation of an intermediate reversal and not be too eager to try to pick the absolute bottom. Markets are still falling and may even be entering a panic condition that could trigger further selling, potentially extending the decline. Use the 3 T's below for confirmation that a true reversal has begun.
Timing: Ensure that the intermediate cycle has reached its projected low timeframe.
Trigger: Look for a significant volume increase and price spike, indicating strong buying interest.
Trend: Confirm that the market is maintaining higher lows and higher highs, indicating a sustained upward movement.
For more insights on trading strategies, check out our previous post on How to Predict Stock Market Trends.
Stock Market Reversals Additional Information
What are intermediate cycles in the stock market?
Intermediate cycles refer to market trends that typically last from a few weeks to several months. These cycles are essential for identifying significant market turning points and making informed trading decisions.
How can traders predict market bottoms?
Traders can predict market bottoms by analyzing various indicators, including intermediate and long-term cycles, volume spikes, and price patterns. Confirming these indicators before making trades is crucial to avoid false signals.
What impact do Fed interest rate decisions have on market cycles?
Fed interest rate decisions can significantly impact market cycles by influencing investor sentiment and economic conditions. Lower interest rates generally stimulate market activity, while higher rates can lead to market pullbacks.
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