We will leave it to our readers to conduct further research on the pattern if they are interested. Suffice it to say that there were five more resolutions of the pattern working backwards to March 2003. At least three of those prior resolutions were remarkably accurate in terms of providing an important turning point. The dates involved were March 11, 2003, August 9, 2006, and May 2, 2008 (an exact high close in the DJIA prior to the 2008-2009 collapse). The pattern was somewhat more diffuse prior to that although there was still some spectacularly accurate turning points that could be attributed to the pattern (December 3, 1968, August 12, 1982, October 2, 1987 November 17, 1992, and January 9, 1998). Within the pantheon of these prior spectacular turning points, it is impossible to predict where July 25, 2018 will end up standing. It is even, of course, possible that it will turn out not to be an important turn of any kind. But the fact that it is occurring at the same time as some of the accompanying data presented in this report should provide added gravitas to its potential as an important market turning point.
The final aspect of the current market picture we will comment on relates to market momentum readings as measured by the Ratio Adjusted McClellan Oscillator. Tuesday’s close on the S&P 500 Composite Index was the highest close of the prior 118 trading days (almost 6 months). It was accompanied, however, by an unusual reading. As the index moved to an almost six-month high, the ratio adjusted McClellan Oscillator was below zero. We queried our computer as to the last time the S&P 500 Composite Index had moved to the highest high of the previous 118 trading days accompanied by a ratio adjusted McClellan Oscillator reading of lower than -5. The third condition was that the ratio adjusted McClellan oscillator was lower than the previous day on the day of the new high. Those were the three conditions. First, let us tell you the last time those three conditions were met. It occurred on January 25, 2018, just one day before the all-time high on the S&P and the DJIA were registered. Before we lead you to believe that the market became very vulnerable anytime those three conditions were met in the past, the sober fact is there were other times where the conditions were satisfied that were not followed by strong market declines. Overall, however, there was a decided tendency to see at least a short-term decline of significance once those three conditions were met in the past. Here are the prior eight occasions, working backwards in time, when the three conditions noted above were satisfied:
January 25, 2018
November 3, 2017
October 17 – 19, 2017
August 7, 2017
May 8, 2017
July 24, 2014
June 4, 2014
April 2, 2013
If the strong turning point pattern we detailed above is to assert itself, the turn should either have occurred already or should occur within 1-2 more trading days based on the longest prior time spans of the pattern.
A final note that relates to market sentiment. We saw a chart today that showed the total assets in Rydex bear funds, funds at Guggenheim Investments where people invest when they expect the market to decline. In the last day or two, that number was at the lowest recorded reading of the past 18 years. In effect, virtually no one expects the market to decline from these levels.
For the first time since higher projections were generated in early July, we believe the projection picture argues for the possibility of an important top.
Are there any other suggestions that such a top might be at hand?
Indeed, there are! We discovered a remarkable cycle or turning point pattern over the past few days that fits in very nicely with the concept of an important turning point.
As regular readers of our reports know, our cycle counting tends to deal with fixed cycles of relatively exacting magnitude. It is difficult for us to become attached to cycle analysis that allows for large margins of error. If you tell me a market turn is due in 20 weeks ± two weeks, you are giving me a four-week window that does not seem to be very useful.
We have come to recognize, however, that there are some cycles or turning point patterns that, while not exact, are close enough within a small margin of error to be considered important patterns. That describes perfectly our next pattern.
In the chart below we show 4 previous turning points of importance that occurred on October 3, 2011, June 24, 2013, March 2, 2015, and November 4, 2016. The number of trading days between those important turning points were 432, 424, and 426 respectively. What makes the pattern all the more impressive, however, is that there were other important turns that took place within the pattern prior to October 2011. We will discuss those after we show you the visual impact of the most recent turning points. Today was the 431st trading day since November 4, 2016. The longest previous time span going back to 2003 was 433 days.
We are attempting to rush out this special report just three weeks after our last report rather than the normal 4 to 6 week time span because we perceive some potentially very important technical and cyclical occurrences. It will be shorter than our usual report but we believe it is jam-packed with important cyclic and technical information.
In our last report, we included a do-it-yourself chart for the New York Composite Index that would indicate whether a downside projection was scheduled to be met or invalidated. Within just three days of our July 1 publication date, the New York Stock Exchange index moved back above its projection line thereby invalidating the downside projection.
From that point, we waited until new upside projections of significance were generated. On July 9, nominal five week upside projections were generated and we have simply waited until those projections were met. Today, for the first time, prices moved up inside the projection windows for the nominal five week upside projections. We will show you two of those projection windows in the charts that follow.
The first chart below is what we call a closing price projection chart. Typically, projections are generated on bar charts but we discovered decades ago when we were experimenting with price projections that closing prices also generated projections that were sometimes remarkably accurate. The offsets used to generate nominal five week projections are 12.1 - 13.8. Those numbers may seem strange as half-spans of five weeks until you realize that they take into consideration market holidays. If you are interested in the math involved, (ignore the rest of this paragraph if you are not), there are an average of 252.5 trading days in a market year, and there are 52.178571 weeks in a year. That number is derived by dividing 365.25 (the average year is that long because of the added day on a leap year) by 7, the number of calendar days in a week. Now we can divide the number of trading days in a market year, 252.5, by the number of weeks in a year, 52.178571 to give us the average number of trading days in a market week. The result is 4.84. Five weeks would have 24.2 trading days and the half span of a five week cycle would simply be half of that, or 12.1.The chart below is current through the close of July 25, 2018 and you can see how the closing price represented by the solid blue line closed well within the projection window.
Obviously the projections for the S&P 500 are of great interest to us but we have always maintained that the most consistently accurate projections were derived from charts of the New York Composite Index. Perhaps it’s because of the greater universe of stocks with well over 3000 issues represented as opposed to the 30 in the DJIA or the 500 in the S&P 500 Composite.
The next chart shows you the same offsets applied to a closing price chart of the New York Composite Index and the resultant projection window. Notice that today’s closing price was comfortably inside the projection window.
We do not mean to imply that this is the only projection that is important. Typically, after a projection is generated and met, we look at longer-term projection charts to see if longer-term projections are being generated as the current one is being met. In this case, the longer-term projections are somewhat more complicated although in our opinion no further upside projections have been generated and confirmed.
Stockmarket Cycles Report for July 25, 2018
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