A Temporary Bifurcation Has Occurred Between The US Cyclicals & Tech Sectors

Written by Tony Caldaro

The bull market put in a positive twist this week after the French elections over the weekend. Before even reaching our minimum downside targets for this downtrend markets worldwide gapped up on Monday, continued higher on Tuesday, and then stalled at higher levels for the rest of the week. This activity has created a temporary bifurcation between the US cyclicals and tech sectors. A rare occurrence, but nothing that has not happened before. In time, sometimes as long as 6 months, the two sectors will realign. For now we have the cyclicals barely still in a downtrend, and the techs continuing their uptrend.

Review

The market started to week at SPX 2349. After a gap up opening on Monday, and another gap up opening on Tuesday, the market hit SPX 2398 by Wednesday. After that it pulled back to end the week at SPX 2384. For the week the SPX/DOW gained 1.70%, and the NDX/NAZ gained 2.45%. Economic reports for the week were mostly negative. On the downtick: consumer confidence/sentiment, durable goods, pending home sales, Q1 GDP, the WLEI, plus weekly jobless claims rose. On the uptick: Case-Shiller, new home sales and the Chicago PMI. Next week’s reports will be highlighted by the FED’s FOMC, the ISMs, and monthly payrolls. Best to your week!

Long term: uptrend

Longer term the count in the SPX remains the same. Intermediate waves i and ii in the spring of 2016. Then Minor waves 1, 2, 3 and 4 between June 2016 and April 2017. The current rally, which is already two weeks old, is either Minute B of Minor 4 or Minor 5. As for the Tech sector, they are still clearly in Minor wave 3. Since this can resolve itself in several ways, we’ll just let the market unfold and see what develops. In the mean time the long term target remains unchanged: SPX 3000+ between 2018 and 2020.

Medium term: close to confirming an uptrend

In a review of the charts we found some interesting clues to the Minute B/Minor 5 dilemma. The SOX, R2K, XLB, and XLK have already confirmed uptrends after a recent downtrend. The XLP, XLY, XLU and HGX never confirmed a downtrend and are still uptrending like the NDX/NAZ. This suggests about 70% of the US sectors we follow are currently in confirmed uptrends. In the foreign markets the SMI and TSX just reversed into uptrends, while the DJW, ASX, NFTY, CAC, DAX, HSI, IBEX, MIB and STI didn’t experience a recent downtrend. This suggests over 70% of the foreign markets are in confirmed uptrends too. Probabilities suggest a SPX uptrend should be confirmed soon.