The Dow broke below the daily cycle trend line, turned the 10 day MA lower, and is in its timing band for a daily cycle low. And Thursday’s bullish reversal eases the parameters for forming a daily swing low. A swing low and break above the declining trend line will signal a new daily cycle.
It’s questionable if day 27 represents a DCL for the Nasdaq. However, the tech heavy Nasdaq is breaking out to new highs. The Nasdaq is currently in a daily uptrend. Breaking out to a new high signals a continuation of the daily uptrend and triggers a cycle band buy signal.
The broader S & P has been consolidating for almost the past 2 weeks. A break below the day 27 low of 4630.66 should see stocks complete their daily cycle decline. But with the Nasdaq breaking out to new highs, it is possible for the S & P to follow.A break above the day 27 high of 4718.50 will shift the odds of stocks entering a melt-up phase and stops should then be raised to the new breakout level.
With the Dow Jones down another 1190 points on Thursday and the S&P down another 137 points, it is undeniable that stocks are declining into their yearly cycle lows.
February is month 14 for the yearly equity cycle, placing stocks late in their timing band for a yearly cycle low. Stocks have already broke below the monthly trend line and is breaking below the 10 month MA. Stocks are forming a huge bearish monthly reversal which will ease the parameters for forming a monthly swing high. A monthly swing high is required for stocks to complete their yearly cycle decline. Since stocks formed a higher monthly high in February, the earliest a monthly swing high can form will be in March.
And as stocks are dropping down into their yearly cycle lows, they are taking other sectors right along with them.
The Miners are also forming a bearish monthly reversal. This is month 9 for the yearly Miner cycle, placing them in their timing band for a yearly cycle low. Like stocks, the Miners formed a higher high in February. Therefore the earliest a monthly swing high can form in March. Then the Miners should go on to close below the 10 month MA in order to complete its yearly cycle decline.
This is month 13 for the yearly oil cycle, placing it in its timing band for a yearly cycle low. Oil was rejected by the converging declining 10 month MA and the 50 month MA and is breaking lower. And with stocks dragging everything down, I do not expect to see oil bottom until stocks print their yearly cycle low.
On February 10th and February 16th we discussed how stocks were in their timing band for an intermediate cycle decline. We also discussed the emerging health concern presented by the Coronavirus that was causing massive disruptions that impacted manufacturing worldwide. It seems that these concerns finally came together to form the Perfect Storm.
The Dow Jones Industrial dropped over 1000 points on Monday. The S&P was down over 120 points. Both indices broke below their previous daily cycle low to form a failed daily cycle. Over the past 2 years (14 daily cycles) stocks averaged 39.54 days per daily cycle. Monday was only day 15 for the daily equity cycle. If stocks run their average cycle, then stocks would need over 4 more weeks before printing their daily cycle low.
The Fed will certainly try to rescue the market so I think that we will likely see a bounce at some point. The earliest that stocks printed a daily cycle low over the past 2 years was 23 days. So until stocks get closer to their timing band, any attempt to rescues the market may not gain any traction.