Throughout the November 2014 – July 2015 series of highs, I thought I had a pretty air-tight construct of the market. The 2015 topping evolution was neatly bookended by the 28-Nov-2014 high in the Dow Transports on the left and the 20-Jul-2015 high in the NASDAQ Composite index on the right. The panoply of cycles in the spring of 2015, the deterioration in breadth and new high / new low data figures, and a “thinning” in the advance all contributed collectively to my view that we were in all likelihood viewing the top of the market in the “rear-view mirror.” But the magnitude of the move up since the September 29th low has been utterly eye-popping – and, admittedly, not something I had anticipated. As a result, I have recently concluded that there may be one more high in the cards – a “retest” for some market indices – before the obituary can be written on this “mother of all bull markets.”
On the S&P 500 chart above, I have depicted a high-high recurring rhythm that averages 39.8 trading days (TDs). This cycle – like all cycles – expands and contracts. But the average over the long haul is right at 39.8 TDs. The pattern would suggest further consolidation from here into mid-month. From that point, I’m looking for the market to mount another 39.8 TD cycle rally into about December 21st – the Winter Solstice. My analysis suggests that this pending December high is likely to coincide with the next 159.2 TD primary cycle high. This next primary cycle high will, in effect, mark a secondary – and perhaps final – market peak. In all likelihood, the Dow Transports and New York Composite indices have seen their bull market peaks. A December 21st high may well mark the pinnacle highs for the Dow Industrials, S&P 500, and NASDAQ Composite indices.
NASDAQ Poised to Make New Highs in December?
The NASDAQ Composite index has pushed from the March 2009 low at 1,250 all the way back up to 5,231.9 and, in the process, just marginally exceeding its March 2000 high. The July-August pullback constituted a test of the breakout. This renewed surge to the upside suggests the uptrend remains intact. Indeed, the junior cousin of the NASDAQ Composite – the NASDAQ-100 ($NDX) – just posted new, all time highs. I note that 150.26 trading days from the May 20th high in the S&P 500 lines-up with the December 21, 2015 time period. That point may well coincide with the final high in the NAZ. Interestingly, the prior bull market high for the Dow Jones Transportation Index on May 19, 2008 coincided with 150.26 TDs from the 11-Oct-2007 highs in the Dow/S&P/NYA indices.
Weekly Pattern Suggestive of a Major Market High
I recently uncovered another cyclical pattern that presents the very compelling case that we are right at the cusp of a stock market pinnacle.
The S&P 500 weekly chart above depicts a 0.382 – 0.236 – 0.382 (sum = 1.000) Fibonacci ratio pattern involving the March 06, 2009 major market bottom, the October 04, 2011 major low, and the May 22, 2013 high. What is so special about the May 22, 2013 high you may ask? The price point itself does not especially stand-out on the chart – although it did mark one in a series of 159.2 TD / 33 week primary cycle highs.
More importantly, though, the May 2013 high represents a momentum high in the bull market advance from early 2009. New highs peaked-out at that time at 535. Every new high since May 2013 has been accompanied by fewer and fewer 52 week new highs on the New York Stock Exchange.
One cannot help but notice the glaring divergences now developing between the European (and Canadian) market indices and the American market indices. 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. The August/September bottoming structure mirrored that of the US indices, but the rebound from those lows is dramatically greater for the American DJIA/S&P/NASDAQ than for the DAX/CAC/FTSE/TSX.
Indeed, the action in the European indices appears to more-closely align with the New York Composite. If new highs in December are not matched in Europe, a major divergence will be at hand – providing yet one more technical failure and indicator of a major market peak.
Since breaking decisively below the 1,125 price octave, Comex gold prices have continued their slice-and-dice move to the downside. I would not be surprised to see the July lows broken – with the 1,000 level tagged before gold can mount any countertrend rally of significance.
The XAU continues to collapse. 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 be considered for an intermediate retracement.
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 November. 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