Yesterday’s pancake in the broad market was a bit un-nerving to be sure. I view such downside “air pockets” as a market reaction to getting just a tad over-extended on the upside. The benchmark averages had rallied back above their respective 50 day moving averages which has served as resistance – at least thus far. Curiously, the Dow Jones Industrials have not weathered the pullback as well as the rest of the market. I note the DJIA intraday pulled back below 17,500 to nearly tag the lows of January 16th – the latest in the 39.8 TD cycle series. The rest of the grouping I refer to as “the Big Five” are well off their January 16th lows. If this continues, we may have a scenario similar to 2000. You may recall the DJIA was the first of the majors to peak out in that cycle of 15 years ago.
The DJIA topped out in January of 2000, the NAZ and S&P in March, and the NYA in September to complete the pattern. Of additional interest to me is the pattern in my 7 / 14 / 40 day measures of price velocity. Note that even as the 7 and 14 day components have moved higher off the January 16 low, the 40 day component has now moved lower. Either we have a minor lag in the indicator or we could be setting up for a broader decline. It’s unclear for the moment but this one fly-in-the-ointment aside, the bulk of the evidence I monitor points to higher prices ahead.
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 latest update to the Harley Market Letter for January. Want to learn more from acclaimed market analyst Stan Harley? Visit his site and subscribe to the full Harley Market Letter.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer