During the past few years, we’ve seen plenty of sharp sell-offs in equities that have reversed (Buy the Dip) to make new highs, but this time the sell-off feels different.I sense that the market’s character has changed on multiple time-frames.That said, I’m keeping my eye on the recent S&P high at 2,120.55.It’s just shy of the all-time high, and if the S&P rises above it, a big new all-time high is likely to follow.

Last week’s equity selloff was accompanied by an unusually big move in the VIX (fear) index.And in a clear sign of market distress, world sovereign debt markets rallied sharply, as capital moved from equities into the most defensive of asset classes.Such desperate bids to own debt at 0 or even negative interest rates, tells me where the smart money wants to be invested.

The decline this week was expected and the timing (day 19) for a move into a Half Cycle Low was perfect.The market tried to rally on Friday and failed, although I believe that during the coming week, the S&P will recover to retrace at least half of its recent decline.

Surprisingly, sentiment has remained significantly elevated.Bull market conditioning has left far too many people believing that equities will see another big rally in the near future.I don’t think that’s at all likely.

For the past 2-3 years, the market has not been driven by fundamentals.Earning grew until 2014 and kept the market at least somewhat satisfied.But now, with earnings and revenues both having peaked 2 years ago, and with the age of the expansion at 7 years, the economy has almost certainly peaked for this Business Cycle.Its next move should be toward the trough (recession).

Fundamentals were an afterthought while earnings were increasing.But now that earnings have turned lower, all eyes are on the FED.Only easy money from the FED’s printing press can sustain a market at historical overvaluation.

The FED’s recent policy focus has been on ZIRP (Zero Interest Rate Policy), yet it is clear from the chart below that ZIRP alone cannot lift the market higher.We’ve had a zero interest rate environment for 8 years, and to expect a new stock market breakout from a continuation of ZIRP is ludicrous.

The markets are running dry of liquidity again and only a new round of quantitative easing (QE4) can get equities going again.It’s my view that there are only a couple of events that could lead the FED to embark on QE4: a) the market takes a massive dive, or b) the economy turns decisively lower.

We are left with an Investor Cycle (IC) that stalled near the S&P’s all-time high.The market has spent nearly two years in the current topping range, and now that the current IC is at a typical topping point, I expect the coming Daily Cycle rally will quickly reverse lower.I expect that traders this tile will not Buy the Dip, and the next big Weekly Cycle decline over the summer will begin.

In summary: perceived risk for equities should continue to rise, volatility should increase, and a summer selloff should begin shortly.This should become one of those instance where they will not Buy the Dip.