Post Sell-off Update: Wednesday 16 September 2020

Last week saw another regime change after the timely late-August “Amber Alert” regime shift. This time, however, the model is pointing towards the “Mind the Squeeze” state. This is not necessarily an imminently bullish state but a notification that we are likely in a high-volatility state that is prone to sharp squeezes as illustrated by the blue-shaded regions below for historical context. The red zones are the other high-volatility state, and this one is prone to sharp declines hence “Sell the Rip”.

The Composite LT Cycle still has some tail-wind juice but that likely evaporates in Q4 and becomes a head-wind throughout 2021 and into 2022 (more on this with the passage of time).

What of the near-term? As a reminder, the optimal policy from the MDP is to be long in some manner expect in the “Sell the Rip” state. The LT cycle suggests further gains for stocks are still likely, possibly into the US election and year-end. The second half of September may provide further weakness as shown by the Annual Predictable Zones below. This then gives way to positive zones for the remainder of the year. So perhaps the safe buy comes towards month-end. I have been buying the stocks discussed in previous reports.

The main summary is still captured in the previous SPX scenario chart i.e. a bull market that will likely reach maturity in the not-distance future and give way to a large-degree correction.