Prognostication: Market Springs in Mid-February?

Stan Harley |

Neutral Outlook Issued:  Consolidation into February 9-11 Time Period, Then Higher

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There has been a stealth consolidation underway since the late-December highs. Since the DJIA / S&P 500 peaked in late December (the New York Composite on September 04, 2014) the popular averages have etched out a volatile, consolidative chop with a 2,062.5 basis the S&P as the overhead cap and 2,000 basis that same index as the underlying floor of support – at least thus far. Admittedly, I was late to recognize the signs of the pending weakness – although the “caution” signs were starting to become apparent once the market failed to break out of its congestion band following the January 16 low point. The structure in the New York Composite appears to be contained within a “symmetrical triangle.” I had thought this index was poised for an imminent upside breakout, but I can now see we are likely to see modest weakness for the overall market for at least another week. My cyclical work points to Feb. 9-11 for the likely end point in this consolidation – with focus on Feb. 9 - probably mid-session - based on my hourly studies. Although I don’t see any major drubbing on the near-term horizon, equity prices are likely to drift modestly southward for the next week.
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Long Term

 

 

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With each weekend issue of the UPDATE I am including some of my long-term cyclical studies I publish in the monthly market letter. 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.  Last week I depicted my work involving the 84.3 year cycle. This issue I highlight a 49.2 year cycle I have also uncovered. The Dutch Tulip Mania of February 1637 appears to be the Genesis Point for both of these major long-term cycles. 

The 49.2 unit cyclical function I have found appears dominant in virtually all markets and all time frames. In the stock market, 49.2 unit cycles are prevalent on daily charts, weekly charts, monthly charts, and yearly 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 – represents 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 a major top is not just due – but overdue.

Following the January 22 high, the Dow Industrials turned back down again and is now treading water below the all-important 17,500 price octave. Although I don’t look for any significant break from present levels, I do see potential risk back down to the 16,875 level – the next important price octave below the 17,500 level. A decline back down to 16,875 would also coincide with tagging the rising 1 X 1 angle I have shown in red – yet still maintaining the rising bull market structure. I’m advising a NEUTRAL advisory at this juncture – with a plan to revert to BULLISH by the second week in February. Following the cycle low, in the next five to seven trading sessions, I expect to see the DJIA back above 18,000 in fairly short order.

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Treasury Bonds

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30-year treasury bond prices are back above 150 and would appear poised to break out above the July 2012 high. However, I am skeptical that we will see any breakout here. A 238.8 trading day cycle that punctuates the daily chart is overdue, and I look for a meaningful pullback before the July 2012 all-time high is demonstrably taken out

Precious Metals

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Comex gold got just a tad overextended in the recent run-up and is now in the process of pulling back to the 1,250 price octave. Although I'm tempted to advise a long position in the coming days, I note the pattern of lower highs with each rally in succession. In my view, standing aside and waiting for the next entry on the short side is the better risk/reward.

 

 

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.  

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