Why the 2-Year Cycle Context is Key & Why a Larger Decline Should Ensue.
Why the 2-Year Cycle Context is Key & Why a Larger Decline Should Ensue.
09/28/18 INSIIDE Track: “Outlook 2018 – 2019
Cycles in Context
09-27-18 – Context is often the most critical component of any analysis. Even in a judicial setting, context can often make the difference between truth and lies. (That is one danger that the oath ‘truth, whole truth and nothing but the truth’ attempts to address. A sliver of truth, removed from its context and compartmentalized on its own, is sometimes not truth at all.)
That is also the case with fundamental news, with technical indicators and especially with cycles. The Sept. 26 Fed action and commentary would have extremely different connotations if it were at the beginning of a recovery cycle, in the middle of one or nearing the end of one. It might not be ‘untrue’ in any of those settings (since it is just a simple fact), but it would have vastly different impacts on the markets and on traders’ perceptions and expectations moving forward. The context is the key!
As often emphasized, the same is true of almost any technical indicator. The context in which it is generated has a significant impact on what it means, how effective it should be, and also the expected longevity of that signal. That ‘context’ could be where in a trend the signal is triggered and/or whether the signal is against the prevailing trend.
The corresponding context triggers a different set of expectations and guidelines (i.e. certain signals should be given far less time to prove themselves if they are triggered against the prevailing trend).
The same is true with cycles.
One example of cycles and their diverging contexts is described on page 5. It describes a recurring 2-Year Cycle in Stock Indices and discusses the uncanny similarity of equity moves on a recurring 720-degree (2-year) basis.
The clarifying factor is the context in which each corresponding move takes place. In one case, it might be after a Major ‘I’ wave advance and yield a larger-magnitude ‘II’ wave correction. In another instance, it might be following the 3 wave of ‘III’ wave advance – leading to merely a ‘4’ of ‘III’ wave pullback… and so on.
In each case, the equity markets corrected (and or entered ensuing advances) on a consistent 2-year interval. However, the context – in this case, the wave structure and the market’s location within that wave structure – created vastly different degrees of sell-offs. The context was the key!
Equity markets have steadily rallied since fulfilling multi-year cycles projecting a 3 – 6 month or larger bottom to take hold in March 2018. While fulfilling that, stock indexes generated a weekly trend pattern that projected a rally back to their highs. The DJIA has just fulfilled that, the third and final index to accomplish that. Overall, a topping process has been expected in 2018, setting the stage for a significant correction…”
Equity markets are entering an extremely precarious time based on a combination of cycles. The 2-Year Cycle is projecting a sharp (10 – 15%) sell-off in October that is expected to usher in a 1 – 2 month low in late-October – acting as a precursor to a more devastating sell-off soon after. The context is the key.
A subsequent rally would then set the stage for a more dramatic move to follow, with cycles turning most bearish after an expected lower peak in late-Nov./early-Dec. The DJIA remains likely to reach 22,100 in 2018.
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.