Yields/Cycles/Sentiment Say Gains May Not Last

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Numerous markets and time frames still point to lower lows in stocks later in 2012. We believe the S&P 500 could push above 1,285 toward the 1,300 - 1,343 range. However, that move may be retraced fairly quickly, based on DeMark counts, increasing bullish sentiment, and still-elevated Italian bond yields. The negative implications of a 10-year Italian bond yielding 7% were outlined at the 00:29 and 13:00 marks of a December 18 video.

italy yield

UBS created an interesting chart using the Juglar cycle, Kitchin cycle, and Dow Jones Industrial Average. According to Wikipedia:

The Kitchin cycle is a short business cycle of about 40 months discovered in the 1920s by Joseph Kitchin. The Juglar cycle is a fixed investment cycle of 7 to 11 years identified in 1862 by Clement Juglar.

business and investment cycles

Investors tend to get overly bullish near market tops and overly pessimistic near market bottoms. The latest AAII sentiment survey aligns with the idea of a probable peak occurring between 1,285 and 1,340 on the S&P 500. Bearish sentiment fell to the lowest level in roughly a year. Bullish sentiment rose to the highest level since early February 11, 2011; the S&P 500 peaked a week later (see below).

spx sentiment 15 march 2011

Source: Ciovacco Capital

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About Chris Ciovacco

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