A challenging call here to be sure – but I would suggest it is indeed very possible we may have just seen my expected high. On November 28, we saw the Dow Jones Industrials, the Dow Jones Transports, and the S&P 500 push into intraday record high territory. The NASDAQ pushed into fresh new 14 year high ground – but not all time high territory. Notable laggards: the New York Composite, the Russell 2000 – both of which were down sharply on Black Friday – the latter by a hefty 1.46%. The S&P 500 pushed to just above the 2,062.50 price octave – my long-term outstanding target for this index. We are there. And running out of juice.
Above I show my indicator plot that measures price velocity across three daily time frames: 7 trading days, 14 trading days, and 40 trading days. Note the divergent structure developing in the 7 day and 14 day components. And, with last week's new high, the 7 day component has just nudged the underside of the 14 day component and turned down. That pattern suggests to me that the trend is about to turn south. And, if we’ve just witnessed a major top, a serious whack is forthcoming.
890 TD / 185.5 Week Cycle
Above I again show my weekly chart of the S&P 500 cash index with a recurring rhythm I have found that averages just a tad over 890 trading days – about 185.5 weeks. This cycle has denoted every high of import going back nearly 20 years. This cycle has been quite regular in its recurrence, although between the 09-Dec-94L and 01-Sep-00H the cycle underwent a Fibonacci 1.618 permutation. As an aerospace engineer, I’m a numbers guy as you know. I’ve been struggling for some time in my attempt to find the math that supports this cyclical function. I think I found it. I noted that the time period between the 09-Dec-1994 low and the 01-Sep-2000 high spanned 1447 trading days. This timespan virtually equals the 1444 trading days spanning the duration in time from the 06-Mar-2009 low into today’s high. Very interesting, indeed. The values 1440 and 890 are the product of ten times the Fibonacci numbers 144 and 89 – and I think that may just be it.
My revised regression analysis of the data depicted at left incorporates today’s high – assuming today was the high. The analysis reveals a very high coefficient of determination value, symbolized by R², and a very low standard deviation compared to its cycle length.
Treasury Bonds
Bond prices continue to creep higher – putting my bearish stance now underwater. Given the large spike on October 15th it is likely we may retrace a good percentage of that range before again reversing. I also note a potential repeat of the prior 32 TD high-to-high sequence.
Precious Metals
Sloppy price action underway in the metals complex. I opted to advise a NEUTRAL position given the potential pop higher after the latest 5-6 month cycle low. Putting on any longs here would be excessively high risk in my judgment but the 1,250 price octave and change is still possible in the weeks ahead.
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