Long, Hot Summer
It looks like the Dow is due for its
first major correction of 2017. While the expected downturn could be
“uncomfortable” for many, it is not expected to witness the end of the secular
Lindsay’s long cycle
is expected to count a 15yr interval between point A (10/10/02) and points J or
H. That would place the more important high in the period from October’17 until
The downturn we
expect now is due to the combination of a different 15yr interval forecasting a
high in the period from September’16 until August’17 (see Market Update December 27, 2017) and a 12yr interval pointing to a
low in the period May-November 2017. It could be a long, hot summer.
The correction may
have already begun with the high on 3/1/17. We also have a Middle
Section forecast for a high closer to 4/3/17.
Elliott Wave Target:
Looking at the bull
market advance since 2009, we can see at least two options for counting. The
options are that wave 3 ended in May’15 (blue) or wave 3 is ongoing (green).
The late 2015
decline certainly looks like a potential wave 4 except that the high earlier in
May that year came with a negative divergence in RSI. Third waves usually have
a strong RSI reading (like now).
If SPX is currently
in wave v of 3 (green), then wave v is expected to be 100% or 161.8% of wave 1
(2009-10). As 100% has already been
exceeded, 161.8% at 2,700 is the next target.
However, if SPX is
in wave 5 from the 2009 low (blue), it is expected to be 61.8% of the
2009-20015 rally. That would target… (drum
With the failure to see the expected
correction in our longer term forecast, this is probably a good time to review
A 15yr interval
points to a top sometime in the period from September 2016 until the end of
We previously found
that we can count both a sub-normal basic advance from the August 2015 low and
a short basic advance from the February 2016 low and they both terminate within
the 15yr interval. The sub-normal basic
advance forecasts a high in the period from 3/31/17-10/18/17. The short basic
advance forecasts a high in the period 5/15/17-8/11/17.
Conclusion: We look
for an important top in the period 3/31/17-
8/29/17. Next week we will apply
Lindsay’s middle sections to generate a single-date point forecast.
The next confluence
of Fibonacci retracements is at 2,382 and is our price target for SPX
but last Friday was a 21-day cycle high so something’s
gotta give here. A 6mo cycle high
was due last week, too.
Lindsay’s 107 day
interval points to a tradable high no later than today.
George Lindsay wrote
of a 107-day interval which he used as a confirming tool for finding highs in
the Dow. Like all of Lindsay’s models, this one was not to be used in isolation
– a common mistake made by those familiar with his most popular model – Three Peaks and a Domed House.
The 107-interval is
actually an interval stretching anywhere from 102 to 112 days. Lindsay
had a plethora of different methods of identifying the lows from which to count
the interval but as long as we count from a low of some significance – and the
forecast matches other forecasts – it promises to be time well-spent.
Sometimes the model
points, not to the highest high, but to the final high in a topping formation;
similar to the highs last September and October.
The 11/4/16 is
clearly a significant low. It forecasts a high in the period from February 14
(102 days) to February 25 (112 days) and is close enough to other Lindsay
forecasts (published here previously) for a high in our current period.
Lindsay 12-year Low
As often noted, the first step in a Lindsay forecast is determining the
long-term intervals; 15yr (15yr-15yr, 11mo) for highs and 12yr (12yr, 2mo-12yr,
8mo) for lows. Counting a 12yr interval from point B of Lindsay’s Long Cycle on
3/7/05 forecasts a significant low in the period May-November 2017.
However, the 1/3/17 Market Update laid out a forecast for a significant
high (using both a 15yr interval and Basic Movements) in the period April-August
2017. And to further confuse things, a Three Peaks/Domed House pattern –
combined with a Hybrid Lindsay forecast – seem to be pointing to a high within
hours of now. How do we reconcile all of this?
While the Hybrid forecasts are fairly reliable (see below) the 3PDh
model can be less than precise and it’s already fooled us once during this
pattern. Odds are the model is pointing to the same high as the April-August
forecast. That means either the 3PDh high will be late or the April-August high
will be early. Normally my default choice would be the Basic Movements pointing
to April-August but sometimes the Standard Time Spans upon which they are based
gets run over during the 3PDh pattern. Let’s not get bogged down here… We know
there is a Hybrid forecast for a high now. We also know that an important cycle
low is due near March 21 (1/30/17 Market Update). There isn’t enough
time for a basic decline to play out between now and March 21 (222 days is the
minimum). We will have a much better idea as to the expected path of the Dow
once we see if the index can make a higher high before it starts heading down
into the 12yr low mentioned above.
I continue to look
for an important high in the Dow either last Friday (February 10) or early this
The last Hybrid forecast for a low was
published in the 1/9/17 Market Update,
Inauguration Low? It forecast a low in the period January 16-20. The
Dow traded sideways-to-down following December 20 until a low was printed January
19. The Dow has been pushing to higher highs since that low.
Nowhere to go
Continue to look for an important top in the Dow near February 10. As the Dow returned to near our price target
(20,133) last Friday, this week is set to be a sideways consolidation as
equities “spin their wheels” waiting for the big event to commence. Although
the Lindsay work would have us erring later than earlier, equities may begin
their drop earlier than forecast if they have nowhere to go but down.
A Long, Cold Winter
It appears that equity indices have printed their highs for the
post-election rally. However, that doesn’t necessarily mean that the correction
must begin immediately. Cycles and Lindsay analysis point to a final high
closer to February 10. The correction has the potential to be fairly painful as
the low is not expected until closer to March 21 and springtime. The Lindsay
analysis is as follows:
Point E on 3/27/01
of an ascending middle section counts 2,901 days to the low of the multiple
cycle on 3/6/09. 2,901 days later is Monday, 2/13/17.
Point E on 5/26/06
of a descending middle section counts 1,957 days to the low of the previous
basic cycle on 10/4/11. 1,956 days later
is Friday, 2/10/17.
Point E on 2/6/15 of
an ascending middle section counts 370 days to the low of the last basic cycle
on 2/11/16. 370 days later is 2/15/17.
A 222-day interval
(221-224 days) counts 224 days from the low on 7/1/16 to a change in trend on
Counting a 107-day
interval (102-112 days) from the 11/4/16 low indicates that the top should not arrive prior to 2/14/17.
My single date point forecast for a top is on February 10.
Three Peaks and a Domed
The 3PDh pattern of 2014-2016 appears to
have failed. After a textbook, five-wave pullback (first floor roof/points
15-20) in April-June 2016, the Dow shot up in a vertical fashion fulfilling
Lindsay’s description of the 2nd floor wall (points 20-21).
That was followed by a small cupola or head-and-shoulders top with the supposed
bull market top arriving on 8/15/16. The following sell-off should have reached
the bottom of the Separating Decline (February lows) at a minimum. As we all
know, rather than experiencing a bear market, the Dow found a low on Election
Day and the rally to new bull market highs has been named the “Trump Bump”. But
appearances can be deceiving…
The minor sell-off
following the August high also played out as a five wave reversal and the
subsequent rally since the election is the definition of a 2nd floor wall.
Since mid-December, the Dow has moved sideways which is necessary to the
formation of a cupola.
The standard time
spans tell us not to expect a significant high until the period April-August
2017 but it never hurts to keep one eye
focused on what isn’t expected…
Cycles call for a high this week
A Middle Section
forecast from the Basic Cycle (chart) points to a high on Monday and Lindsay’s
222-day interval points to a change in trend this week – but no confirming
Middle Section forecast is found from the Multiple Cycle. This is not expected
to be a significant high.
Cycles, however, may
be the missing link. A two month cycle high is due near 1/20/17. A monthly
cycle high is due this Tuesday and a six month cycle high is due in late
Even the VIX (Volatility index) looks like it may be marking
a 40-month cycle low. Today should be a 34-day cycle low. Tomorrow is an 18-day
Eight Ball Market
Cycles are shaping up for an important high just before (or just after)
Christmas (It is decidedly so). In addition, the Bradley model shows a
high in mid-late December (You may rely on it). If you feel like turning
to this popular children’s’ toy for advice, it is understandable if not
advisable. The Trump Rally has left many reliable indicators in the dirt but
remember… To everything there is a season, and a time to every purpose under
I have been tracking some unique cycles
for the last few months. The chart below shows a convergence of these two
cycles on, or near, December 23.
The November rally
in the Dow is currently finding resistance at the 127.2% level of the June
A more likely high
is near 20,150 where the 2016 rally is equal to 161.8% of the May’15 decline.
This level converges where the November rally reaches 138.2% of the June rally.
Whether the Dow can break through the 127.2% level (the current level) prior
the December 23 remains to be seen. A break of 20,000 would be definitive.
In addition, the
Bradley model shows a high in mid-late December.
It’s Different this Time
The normal bullishness of this time of year was turned on its head last
year and we’re beginning to wonder if it may happen again this year. In
addition to a plethora of cycle highs converging on last week and the coming
week, the McClellan Summation index is not acting right for new highs in the
equity market. It may indeed be
“different this time” but different from what; normal end of year seasonality
or different than last year?
The McClellan Summation Index (chart) needs to close above
+500 to confirm new highs in the equity indices. It has not done so yet and is
closer to -1,000 than +500. The last time it failed to exceed +500 during a
market rally was Nov’15. That was followed by the Dec/Jan/Feb decline.
It’s the most wonderful time of
The holidays bring more than just gifts under the tree, excess
calories, and rude in-laws. December and January represent two of the best
months of the year. However, there is
often a pause in the uptrend in early December. With US markets having experienced
such an extreme “Trump Bump” since the election, patience is likely a virtue
for the bears and bulls alike.
Both On-Balance Volume (chart) and the Advance/Decline Line
refuse to confirm the new highs in equities. The McClellan Oscillator closed
above 150 on Friday (176) which is the level the McClellans describe as
necessary for equities to obtain “escape velocity”; bullish. It is however,
bumping up against its upper Bollinger Band which is a warning of at least a
short-term correction in equities.
Holiday shortened weeks (like this week) have a tendency to be
bullish and the Thanksgiving holiday is more bullish than most. But with the Hybrid
Lindsay model pointing to a low on November 28/29 - combined with a number
of other bearish metrics – it’s hard to get bullish this week. Seasonal
strength during this week’s holiday shortened trading (US Thanksgiving holiday)
is typically followed by weakness in early December.
The yield Curve (30s minus 5s) has broken its downtrend. This triggered
major bear markets in 2000 and 2007 (chart).
The Titanic Syndrome
is triggered when NYSE 52-week lows out-number 52-week highs within 7 days of
an all-time high in equities (or a 400 point rally in the Dow Industrials
index). The syndrome was triggered with last Thursday’s new high. This
phenomenon was discovered by Bill Ohama in 1965. Ohama wrote that the syndrome
is typically followed by a 10% drop in the Dow.
The Dow has reached
the 127.2% retracement of the August decline (top). This is a common
level for a high in equities.
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