We warned that the Dow was not going to blast out to the upside and we saw a sideways to consolidating trend into May. Nothing has really changed and as you can see from our Energy Models, we have indeed been in a declining phase. Technically, the Dow is coming back to key support. With everyone screaming the stocks are overvalued and will crash, it certainly appears we will get this correction and that we may indeed need it to finish off this cycle in bonds.
What do I mean by that? A scare in stocks now will send capital into the bond market to make that final bubble high with a concentration of capital. Stocks are by no means overvalued. Retail participation is at historic lows. So there is no bubble and indeed we do not see a phase transition type of top that marks such major highs. What we do need is to scare the capital to send it running into the bond market to make it complete that high in bonds (low in rates).
Now look at the Dow in Euros. Here we do have the spike in our Energy models. This is implying we should also see the Euro bounce one time. Everyone and their corrupt politician representative is short the Euro. Thus, we have the fuel for a Euro rally soon as well. This will help bring the US market back down in terms of Euro and cut off the foreign inflows temporarily.
We have a Directional Change next week and both April and May are Directional Changes on the Monthly Model level. We still see May as the end of this critical period. So pay attention. We should have some choppy markets here for April and May.
