DJIA 18,125 Soon to be Breached – New All-Time Highs Imminent
Since the March 02, 2015 all time high in the Dow Industrials the market has etched-out a moderately sideways pattern with new highs only in the S&P 500 and New York Composite indices. I say only – not because this market has been boring – it hasn’t – but because the various indices have undergone a lead/lag evolution in the move upward. The Dow has yet to make new highs over the course of the last two months but that is about to change. The 18,125 price level – a significant price octave – has served as overhead resistance for the DJIA since late December. However, with the broad market pushing up and out of its latest 69.8 hour cycle low, the benchmark averages are poised to power northbound in the coming days with new highs in the offing for the Dow Jones Industrials, the S&P 500, the New York Composite, and last – but not least – the NASDAQ Composite.
Despite the prospect for new highs in the popular averages, a number of cracks in the six year bull market are beginning to develop. Major laggards include the Dow Jones Transports, the Dow Jones Utilities, and the Russell 2000. Indeed, for several months I have been cautioning that investors should be monitoring the mid-May 2015 time period for what could mark a very significant high. The precise timing of the bull market peak is a very tall challenge for any analyst; however, the May/June 2015 time period contains a panoply of cycles – long-term, intermediate, and short-term – all suggestive of an important stock market high in the making. In this issue I summarize a number of technical reasons for why I believe a major top could be at hand.
March-July 2015 Clustering
In the March 2015 issue, I highlighted the mathematics under-scoring the root-derivation for the cyclical functions I have found in the financial markets. A portion of the tabular listing is reproduced below. I have placed a red box and blue arrows around the cyclical functions that, when added to the turning points shown on the log chart for the Dow Jones Industrials below, depict a cyclical clustering – and potential high-point reversal – spanning the March - July 2015 time period.
My analysis of the weekly and daily charts has further narrowed the time focus to the May 13, 2015 time period. Indeed, the cyclical clusterings and the deteriorating technical structure suggest the compelling potential for a May 13, 2015 major high.
Although I have gone to great efforts to narrow-down my time focus for a major high to the May 13, 2015 time period, I would emphasize that the time period for a significant stock market high – not the exact date – is more important for investors to keep in mind.
The NASDAQ Composite index has pushed back up from the March 2009 low at 1,250 all the way back up to 5,000 – and is just a stone’s throw from eclipsing its former March 2000 high. Should the slope of the advance continue into mid-May, we should see roughly 5,500 for this index at what could be a major high in May 2015. When it’s all said-and-done, I suspect investors will refer to the “double top” in the NASDAQ at 5,000.
168.6 TD High-High Cycles
Above is a chart of the S&P 500 depicting a high-high cycle that averages 168.6 trading days. Its roots are grounded in Fibonacci numerology: (Fib 377) / (√5) = 168.6. This cycle has denoted every single high of import since the March 06, 2009 major bottom. My regression analysis of the data series points to the May13, 2015 time period for its next recurrence.
Notice in the chart below: We are in the 4th trading cycle from the October 15, 2014 primary cycle low.
If there is one fly in the ointment for my “May 2015 major high” it would have to be the NYSE Advance/Decline Line. Historically, highs in this indicator have preceded peaks in the overall market. That phenomenon has not always been the case, but as a general rule we tend to see breadth deterioration before a final peak is reached.
Data for New Highs / New Lows, however, is beginning to develop signs of a breakdown. The High/Low Differential – computed by a running summation of each day’s net difference between New Highs and New Lows on the NYSE and then applying 10 day and 30 day moving averages – is beginning to droop. Notice, too, the substantial contraction in New Highs as the market has pushed still higher.
The market internals depicted above – advance/decline data, new highs/new lows – are all derived from data based on the New York Composite Index (NYA) – the broadest measure of stock market action depicted on the chart at left. The 11,031.25 level served as a major glass ceiling for the New York Composite for most of the last 10 months. For a very brief day the NYA surged higher to tag the 11,250 level – only to bounce back down to the 11,031.25 level once again. Given my expectation for a major stock market high in the coming two weeks, I rather suspect the 11,250 level – a major price octave – will likely serve as major resistance on this index for quite some time.
In the coming two weeks, I look for the NYA and the rest of the Big 5 components (the DJIA, the S&P 500, the Transports, and the NAZ Comp) to all push higher with all but the Transports scoring new, all time highs.
Since peaking-out in early April, bond prices are starting to break down quite precipitously. The 30-year bond nearest futures contract depicted at left has since broken below its 20-day moving average. And although I remain a long term bond bull, the technical picture for the intermediate term would suggest bond prices could remain under pressure in the coming weeks.
The TLT has broken below its magnetic 50-day moving average with the 200-day just a hair away and likely short-term support. There exists a lot of structure in-and-around the 117-117.5 area and I suspect that is the general price area to which this ETF is heading.
After sitting on the sidelines for the last six months I have opted to advise a return to the BEARISH position. Metals prices have demonstrated a tendency to make highs at intervals spanning 64.4 trading days. I’ve been expecting the next high right in here and it appears we got it. Gold prices should begin to cascade noticeably southbound from here. The price octave at 1,125 could provide a temporary floor of support but ultimately I see much lower prices for gold and entire precious metals complex.
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 May. 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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