We are – in all likelihood – looking at the highs for the broad-market indices in the rear view mirror: Dow Transports 28-Nov-14; Dow Industrials 19-May-15; S&P 500 20-May-15; NYA 21-May-15; NASDAQ Comp 20-Jul-15. The eight month swath of time it has taken to complete this broadening top formation is not unprecedented, by the way. The 2000 topping formation spanned the January – September time period of that year, readers may recall – also eight months. The Dow Industrials topped-out on January 14, 2000; the New York Composite peaked out on September 01, 2000 – a period spanning 160 trading days. The 2015 topping evolution has been book-ended by the Transports high on the left and the NASDAQ Comp high on the right – also an eight month swath of time – 159 trading days to be more-precise. That pattern similarity is not my only bear market barometer, though. A panoply of cycles, the deterioration in breadth and new high/new low data figures all contribute to that view. Between now and the September 1st time period, I look for a stock market that grinds steadily lower – no crash – but a day-by-day erosion of the six year gains that preceded it.
In the short term, the 17,500 level for the Dow Jones Industrials – a major price octave in my work – has provided an underlying floor of support for the senior circuit. Weakness in the DJIA has been offset by strength in the NAZ – and by extension the S&P 500. But very shortly, the downside cyclical pressures should begin to build. Indeed, I would absolutely not be long equities here. This market would appear to be quite vulnerable to the cold winds from the north.
Etching-Out a Major Stock Market Top
The technical evidence presents the very compelling case that we are right at the cusp of a stock market pinnacle. The May/June 2015 time period contains a panoply of cycles – long-term, intermediate, and short-term – all indicative of an important stock market high in the making.
The S&P 500 chart above depicts a market rhythm I have found that has had a notable effect on defining the pivotal peaks in the stock market. Note how every major high on the chart can be defined by this 84.3 month rhythm. The cycle has waxed and waned from a minimum of 76 months to a maximum of 99 months. But the average over a 42 year period is very close to the theoretical 84.3 months.
More often than not, we find divergences in at least one major European index or the Canadian market at a major high point reversal for our stock market. In the 2015 topping evolution, the European indices peaked-out ahead of their American counterparts. The European Big Three – the German DAX, United Kingdom FTSE-100, and French CAC-40 – reached their high-points in April of this year and have since pushed southward – the FTSE the most, the CAC the least.
The British index remains the weakest among the three; the 50-day moving average for the FTSE is pointed decisively southbound. The Toronto TSX Composite has pushed towards the lower end of its 12-month range and is poised to break lower.
Since bottoming out in late June, the 30-year US treasury bond has pushed higher – retracing just over 50% of the high-low range at the latest peak. A very large “gap” is apparent on the charts. Gaps are prone to being filled in a subsequent test – that doesn’t always happen, but it is a very common event on the charts. Technically, the pullback has accomplished all that I had expected. I anticipate a modicum amount of back-and-fill here, but the trend would appear to again be northbound. And higher bond prices equate to lower interest rates.
On the daily chart, the TLT Exchange Traded Fund (ETF) – a proxy for the 20-year bond (and by extension, the 30-year as well) has pushed back to the tag its 200-day moving average. We could see a pullback to test the 50-day moving average, but the trend for the TLT is again towards the north.
Since breaking decisively below the 1,125 price octave, Comex gold prices have chopped sideways in the mid-1000 range. I think it likely we will see the 1,000 level tagged later this month before gold can mount any countertrend rally of significance.
The XAU fell below recent support at 65. If gold were to reach 1,000, we would likely see the XAU in the high 30s – a point from which a long-side trade may prove profitable for an intermediate retracement.
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