Consolidative Structure Complete - With Bullish Implications
There has been a stealth consolidation underway since the late December highs. Since the Dow Jones Industrials / S&P 500 peaked out in late December (the New York Composite on September 04, 2014) the popular averages have etched out a volatile, consolidative structure with 2,062.5 basis the S&P as overhead resistance and 2,000 on that same index as the underlying floor of support. The rising structure in the S&P 500 reflects an index contained within a series of parallel 1 X 1 angles. The recent pullback found support at the the center of that rising 1 X 1 structure coincident with the 2,000 level. The 2,000 mile marker represents a major price octave in my work and, as such, represents an important threshold for both resistance and support. This level served as resistance for the market throughout last summer, but now, having been demonstrably overcome, it's proving to be a solid floor of support. I don’t see any major drubbing on the near-term horizon; indeed, investors would be well-advised to maintain an investment strategy with further bull market in mind.
The NASDAQ Composite continues to arc higher in concert with the senior circuit. On the chart of the NASDAQ, I have drawn horizontal lines at 1,250, 2,500, 3,750, and 5,000. These levels represent major price octaves for the NASDAQ. The 5,000 level of resistance proved to be terminal for this index at the March 2000 highs. A challenge of that high is presently underway, and represents the next technical hurdle of resistance for this index to surmount.
Following the January 22 high, the Dow Industrials turned back down and found recent stabilization just below the all-important 17,500 price octave. As with 2,000 basis for the S&P 500, the 17,500 level for the Dow Industrials – drawn with a heavy felt-tip pen – is proving to be a demonstrable support level for the major industrial average as well. The latest 79.6 trading day cycle low – due ideally in the February 9 time period – may have contracted just a tad to form the low on February 2. The powerful advance of the last two days would certainly seem to suggest just that. With the consolidation complete – or nearly so – the path of least resistance should be higher towards new high ground. I expect to see the DJIA back above 18,000 in short order.
Over the last couple of years, in my research I have found strong evidence of two long term cycles – 84.3 years and 49.2 years – both of which lead to 2015 as a defining pivot point for a major market top. The Dutch Tulip Mania of February 1637 appears to be the Genesis Point for both of these major long-term cycles.
In this issue I highlight my research with the 49.2 year cycle I have uncovered. The chart above is appended with the London market for data prior to 1792 – the beginning of the U.S. stock market. The 49.2 year cyclical function I appears dominant in virtually all markets and all time frames. In the stock market, 49.2 unit cycles are prevalent on yearly, monthly, weekly, daily, hourly, even one minute charts. 49.2 years – whose derivation stems from dividing the Fibonacci number 55 by the square root of five and then multiplying that quotient by two – has represented a defining cyclical function for the last 377 years. Note how each pivotal point on the chart above can be defined by this cyclical rhythm. We are presently two standard deviations past the next projected turning point in this cycle – not beyond statistical norms, but nevertheless indicating we're not just due for a major top – but we’re overdue.
As the US markets have undergone a fairly modest consolidation throughout the September – January time period, the European indices have exhibited considerably greater relative strength compared to their American counterparts. The German DAX is already at new, all time highs. The Paris CAC-40 and United Kingdom FTSE-100 have held recent support well above their 200 day moving averages. The CAC – although well below both its 2000 and 2007 peaks – is poised to break out to new recovery highs. The U.K. FTSE-100 – which has struggled to break through overhead resistance at 6,875 for most of the last year – is on the brink of breaking out to new all time high territory as well.
Crude oil prices – in the news a lot of late – have absolutely fallen off the cliff. Price fell to just below 45 – and slightly below the price octave at 50. This week saw a very sharp rally to back above that 50 price octave level. Given the steepness of the decline, some form of snap-back is due. But is the low in?
The graph at center left depicts crude oil prices going back to the mid 1940s. On the chart, I have depicted a cycle I have found that averages 159.2 months. This cycle has been quite regular over the course of the last half century. 159.2 is a number that shows up in many markets on a regular basis. Its derivation stems from dividing the Fibonacci number 89 by the square root of five and multiplying that quotient by four. The cycle would appear to be undergoing a 1.236 expansion from its initial October 2012 targeted low. A 1.236 expansion of that 159.2 month cycle carries into May 2015. That lines up well with a number of other cycle counts from prior lows – including a 0.618 / 0.382 ratio of the two prior lows – pointing to the next major low in crude in the vicinity of the May 2015 time period. Both Brent crude and gasoline prices have come down in concert. Gasoline prices tagged the 125 level – also a major price octave and probable support.
30-year treasury bond prices are back above 150 and would appear poised to break out above the July 2012 high. Although I remain a long-term bond bull for the next six years, I am skeptical we will see any breakout to new highs in the near-term.
Metals prices are undergoing what I would term a countertrend move in a multi-year bear market. Comex gold found recent support in the low 1100s and is now rallying back towards the July highs of last year. The 1,250 price octave served as temporary support until broken last September. Price has now rallied back to just above that level. The decline underway since early January is seeking to find support again at that all-important 1,250 price threshold. The XAU is struggling to make it back to the 100 level. I suspect 100 for this index will prove difficult to overcome.
Each month, Stan Harley publishes The Harley Market Letter, a newsletter that provides advanced technical analysis of stocks, bonds, and precious metals. This is the abridged Harley Market Letter for February. Want to learn more from acclaimed market analyst Stan Harley? Visit his site and subscribe to the full Harley Market Letter.