Perfect Storm – Update

On Monday we discussed how the combination of the emerging health threat of the Coronavirus, which is causing massive disruptions to manufacturing worldwide, is impacting the markets as markets were already in their timing band for an intermediate (weekly) cycle decline. Tonight we will look at the longer term, yearly cycle.

February is month 14 for the yearly equity cycle, which places stocks in the later stage of their timing band for their yearly cycle decline. A monthly swing high and close below the 10 month MA is needed to for stocks to form their yearly cycle low. Since stocks printed a higher high in February, then the earliest a monthly swing high can form will be in March. Then stocks should close below the 10 month MA in order to print their yearly cycle low.

Perfect Storm

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.