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We started out this year thinking that the economy would stagnate and inflation would experience a second wave or a super-cycle. At this point, as we are five months into the year, the recent economic statistics still appear to support that the economy is contracting. But those numbers are looking back, not forward.

Risk factors, which all turned positive this past week, now suggest that perhaps we can look forward to a better market -- other than what we have just witnessed in the tech sector. With a market timing mechanism of a two-year, shorter-term business cycle within a long-term, seven-year business cycle, the growth in chips is clear and AI technology appears to be in expansion.

The monthly charts of the Nasdaq and the S&P 500 indicate that growth can continue upward if the month of May manages to close out above the blue or 23-month moving average.

The SPY chart shows just how powerful that moving average is. SPY touched it, tickled it, and closed the week pretty much dancing on it. If SPY were to clear the 420 level, then it could even reach 440-450.

On the other hand, the small-caps, retail, and even transportation are still weak. How long can the market hold up if we are seeing nothing more than a stagnating or contracting “inside economy?”

The Russell 2000 and retail are at a completely different precipice than the SPY and QQQs.

The question now is: will they contract more, thereby failing the longer-term business cycle, as seen by the 80-month moving average in green? Or are they done contracting, thereby holding the 80-month MA and thus proving that we have seen the bottom of the trading range (using October lows as major support)?

After a news-heavy week, our original thoughts about an impending super-cycle of commodities seem to be back on the table. The CRB index hit a 52-week low, so what seemed so clear in January has yet to play out in May, despite being five months into the year.

For the next several months, though, many inflationary bullets could resurface. Watch the momentum in the CRB chart, which is bouncing off the 200-daily moving average (green). And watch the price, especially if it clears back over 265. That would be a signal that commodities are ready to rise again.

Regardless, stagflation is our yin/yang scenario.

Looking back to past peaks -- the one in 2000 and then the one in 2008 (which had a lower high and a lower low than the one in 2000) -- it took until 2013 to see new highs. Now, with the peak we saw in January 2022, one has to wonder how many years it will take to get through 4800.

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