Stock Bull Market into late-2014
INSIIDE Track Special Report: Stock Indices 2013 II
Stock Indices Confirming Low
07/09/13: Stock Indices – on a 3-6 month & 6-12 month basis – remain on course. In the past two weeks, they have provided a couple textbook signals that an intermediate low has taken hold – in line with intermediate cycles, signals and indicators that projected (on June 13/14th) another quick 1-2 week sell-off and a corresponding, intermediate bottom within that 1-2 week period (by June 28th).
The most important – and usually-reliable – signal was that of the weekly trend pattern, which turned neutral twice and then back to up. This overall pattern has been described many times and is the ideal scenario for an intermediate correction within a larger uptrend.
This signal is the same one that identified the mid-November 2012 low in the S+P 500 – when it failed to reverse its weekly trend to down after giving two neutral signals. That projected a rally to new highs in the weeks/months that followed…
A third, Elliot-Wave related point – that is a factor in many different technical ‘disciplines’ – involved the test of the previous high. It is also the basis of our oft-cited ’resistance turned into support’ – or ’support turned into resistance’ – indicator.
Simply put, after a market breaks out above a critical (previous) peak, it will provide limited upside follow-through but then return to the breakout point. It is a way for the market to test the validity of that breakout point and see how strong of a point it is (for future reference). If it then holds as support, the market is free to enter a larger advance with that as its base.
There are also some key measuring tools derived from this pattern that have been discussed separately. They should apply in the coming weeks & months and will be discussed in other publications.
In the case of the Nasdaq 100, its recent breakout high was at 2847/NQU (highest daily close on April 10th). On a 6-12 month basis, its highest weekly close – the Sept. 2012 peak – was at 2852/NQ. And, underpinning this tight range of support at 2847–2852/NQU– was the March/April 2012 peak at 2790/NQ.
This created a triple-point support range – covering over a year of price action – at 2790–2852/NQ. The Nasdaq 100 spiked into this range and gave its lowest daily close at 2844/NQU – almost precisely where its April 10th peak close was located (2847/NQU).
Time for Acceleration?
In many cases, when a market pulls back to these previous highs – and holds them – it ushers in an accelerated advance… the final phase of this multi-step process:
1 – The market spent ample time developing and then subsequently breaking above a trading range;
2- It then gave an initial surge to intermediate objectives and/or extremes (possibly luring break-out traders to buy near the highs).
3 – The market then pulled back to test the significance & staying power of those previous highs (and to try and scare break-out traders out of their new, weak long positions).
4 – With this ‘test of strength’ completed – and a strong level of support validated – the market is then free to accelerate higher.
Of course, there are other factors favoring this (at least in the DJIA & S+P 500; the Nasdaq 100 is a little different and will be addressed after this)…
Incredible Shrinking Dips
The DJIA & S+P 500 have been tracing out a sequence of shrinking corrections – a bullish omen that can also precede an accelerated advance – for the past 3 years.
Since July 2010, each successive decline (1-2 months or longer) has become smaller in magnitude. On an approximate basis (since it varies slightly, depending on contract or continuous basis and cash or futures basis), the S+P 500 has experienced the following:
1 – May–Oct. 2011 decline = 305 points.
2 – March–June 2012 decline = 157 points.
3 – Sept.–Nov. 2012 decline = 134 points.
4 – May-June 2013 decline = 132 points.
This type of pattern is often seen in a market that is trying to enter a sharper rally…There are other factors that need to corroborate the potential for an accelerated advance…
As described in previous publications, longer-term cycles converge in Oct./Nov. 2013 and late-2014 (see Stock Indices 2013 for details). IT