August ’19 Stock Plunge XII: New Sell-off Takes Hold; Aug. 21 – 30 = Precarious Period! What Would Confirm Multi-Month Peak?
08/14/19 Weekly Re-Lay Alert – “Stock Indices continue to confirm and fulfill analysis for a sharp plunge in late-July – late-Aug. ‘19. In doing so, they have traced out textbook technical scenarios with the recent rebound precisely fulfilling the combination of four key factors needed to complete a brief bounce and usher in the more dangerous ‘c’ or ‘3’ wave of this decline.
Those factors have been discussed since stock indices fulfilled their initial (short-term) downside projections on Aug. 5/6 and projected a bounce. They were:
— Short-term daily cycles
— Daily LHRs.
— Daily 21 Low MACs.
— Daily trend signals.
In the case of daily cycles, they were spread out from Aug. 7 – 12 (4 trading days), depending on the index. Since the NYA had been leading this decline, it increased the likelihood that the majority of stocks would not enter their second plunge until after Aug. 12.
Daily LHRs were reached last week – a precursor to a multi-week high, typically taking hold within three trading days of that test. That also pinpointed Aug. 12 as the likely culmination of a bounce.
The daily 21 Low MACs had turned down in late-July/early-Aug. – confirming the July 29 sell signal – and the most bearish setup would be a rebound to that descending average before a sharper sell-off takes hold. That was expected to be triggered on Aug. 12, but it took until Aug. 13 for the indexes to fulfill that.
The Aug. 3 Weekly Re-Lay had set the stage for this likely scenario, stating:
That is exactly what transpired. The most reliable and convincing signal involves the daily trend pattern. Stocks were expected to rebound enough to twice neutralize their daily downtrends, but NOT enough to reverse those trends to up.
As of the Aug. 13 close, most of the indices had fulfilled that – at the same time the descending daily 21 Low MACs were being attacked. That is why the Aug. 13, 2019 INSIIDE Track Stock Index Update pinpointed today – Aug. 14 – as the time for the anticipated reversal lower… and the onset of the ‘c’ wave decline (after recapping the fulfillment of all the necessary criteria for a rebound peak)…
During this intervening period, three indicators were expected to help pinpoint a rebound peak. The first was a test of daily LHRs, which usually precedes a top by 1 – 3 days. That took place last week.
The second was a test of the descending daily 21 Low MACs… The S+P 500 and Nasdaq 100 tested those levels today…
The third factor, alluded to in that same excerpt, is the daily trend patterns. The ideal scenario for a rebound peak is to see the indexes rally and twice neutralize their daily downtrends BUT fail to reverse those trends up.
Both the DJIA & NQU have twice neutralized their daily downtrends, ushering in the time (tomorrow) when a reversal lower is most likely…”.
In order to comprehend the significance of this decline, it needs some additional context…
The magnitude of this time frame should not be underestimated. It has been in focus for over two years, with the following Jan. 19, 2017 analysis setting the stage (and being repeatedly reiterated since May 2019):
This is related to the 16-Month Cycle, as discussed in the preceding 5/31/16 analysis (see top of page 10). Three of those 16-Month Cycles combine to create a ~4-Year Cycle – one half of one of the most consistent multi-year cycles in Stock Indices – the ~8-Year Cycle.
In July/August 2007, the Indices suffered a moderate decline that was ultimately recognized as an important precursor to what was to follow.
In some Indices (those that peaked in July 2007), that was the first decline in an infant bear market. In most, it was the final decline in an aging bull market… that was about to die a violent death.
4 years later, in July/August 2011 (NQ-100) or July–Oct. 2011 (DJIA, SP, others), the Indices suffered a serious setback – the last one before a multi-year surge to new highs.
In July/August 2015, 4 years later, the Indices suffered an even greater sell-off with some (like China’s Shanghai Composite) undergoing an all-out crash – providing early fulfillment to Crash Cycles.
In each case, the Indices bottomed in August or September (with a few waiting until Oct. in 2011).
This 4-Year Cycle projects focus on July–Sept. 2019 – for another important decline & bottom.” [End of excerpt from Jan. 19, 2017]
This is how some longer-term cycles work.
Even 31 months ago, this 4-Year Cycle was already revealing important clues about July – Sept. 2019.
As warned throughout 2019, a 3Q 2019 stock market sell-off was expected to possess important parallels and similarities to both Oct. – Dec. 2018 and July/Aug. 2015. Today’s action added another level of verification to that prognosis.
In addition, the action of 2018 – 2019 continues to parallel so much of the action of 1978 – 1979 – a complete 40-Year Cycle prior. That has been discussed for the past year and was again synopsized in the Aug. 2019 INSIIDE Track:
Either the economy, and earnings, do get worse and ultimately drag stock prices lower OR (1) the economy does not justify that mentality, (2) further rate cuts are squashed, and (3) stocks sell off – perhaps on the backs of bonds selling off – as a result of the pendulum swinging back to a neutral stance.
Market Barometers
Generally speaking, the stock market anticipates economic movement 3 – 6 months in the future. So, any concerns about 3Q & 4Q activity could be quickly priced into stocks… and not in a good way.
Cycles and technicals also anticipate future price movement. And the period of Aug./Sept. ‘19 is considered the most vulnerable period in 2019.
That is not due to just one or two factors, but rather the synergy of many corroborating ones. From the broadest (and therefore most general and least precise) perspective, there are the expectations based on the 40-Year Cycle and the unique parallels between 2018/2019 and 1978/1979.
Stock indexes continue to trace out a pattern similar to what they did in 1978/1979. (Other parallels include similarities to US/Iran relations in 1979 and the latest phases of China’s unique 40-Year Cycle.)
On an overall basis, the period of 2018 – 2022 was forecast to experience at least four corrections of 10 – 20% during this period – just as in 1978 – ‘82 – with powerful rallies surrounding those declines.
On a little more precise basis, 2018 traded in very similar action to 1978 – exactly 40 years prior.
In 1978, the DJIA set a 6 – 9 month bottom in February and then rallied into Sept./Oct. ‘78. In early-Oct., equity markets reversed lower and dropped sharply (15 – 20%) into/through Dec. ‘78.
Similarly, 2018 saw a 6 – 9 month bottom set in Feb. followed by a rally into Sept./Oct. ’18. In early-Oct., equity markets reversed lower and dropped sharply (15 – 20%) into/through Dec. ‘18.
In 1979, the DJIA rallied – in three distinct waves – throughout the first quarter, peaking in April ’79 and then selling off for a month.
In 2019, the action was similar (not exact, but similar… history rhymes, it does not repeat).
Following that ~month-long sell-off (1979), the DJIA rallied to new intra-year highs into 3Q ’79 – ultimately retesting the 1 – 2 year peak it set in Sept./Oct. 1978.
In 2019, the DJIA is acting similarly – rallying to new intra-year highs into 3Q ‘19 (after a one-month sell-off) and retesting the peak it set in Sept./Oct. ‘18 as key indicators begin to flash warning signs.
In 1979, the retest of the previous year’s peak resulted in a new 1 – 2 month sell-off that was similar – but not quite as damaging – as the 4Q 1978 decline.
In 2019, expectations are similar – based on a host of other indicators and cycles. Stocks are retesting their previous year’s high (the Sept./Oct. ‘18 peaks) and are
expected to see a new 1 – 2 month sell-off – with current cycles and related timing indicators portending a low in Aug./Sept. 2019.
It is important to re-emphasize that this is NOT solely an expectation that the market will repeat what it did 40 years ago. That is rarely the case.
However, this ~2-year period – in 2018 – 2019 – possessed so many other similarities and so many corroborating cycles and indicators – that the parallels could not be ignored.
Reinforcing this, a unique 4-Year Cycle portends the same thing, with the markets in 2019 acting similar to how they did in 2015 (right down to the leading role of Chinese and European stocks). 2011 has a similar 3Q sell-off, but that one lasted into Oct. ‘11.” [End of excerpt from July 31, 2019]
This ongoing analysis reinforces the significance of the current time frame and this week’s action. The indices reversed lower today, in perfect lockstep with the fulfillment of the ‘fearsome foursome’, and left little doubt that a sharp decline is unfolding.
This reinforces the focus on two key levels that need to signal a higher-magnitude sell-off. One involves daily closes below the Aug. 5/6 lows. The other involves the weekly trends turning down.
As of July 12, all of the primary stock indexes had generated a second set of neutral signals against their prevailing weekly uptrends.
It would now take weekly closes below xx,xxx/DJIA, xxxx/ESU & xxxx/NQU to reverse those trends to down and confirm that multi-month peaks are in place. [Specifics & trading strategies reserved for subscribers.]
From a price objective perspective, the first (of two) key level of intra-year support for 2019 is shaping up as a decisive downside target – with several other factors and indicators corroborating its significance.
That level is the high of the 2019 year-opening range (the first three weeks of the year) – at 24,750/DJIA.
That level is noteworthy since a simple ‘c = a’ downside wave projection targets ~24,450/DJIA.
And that is reinforced by the 50% retracement support that comes into play near 24,550/DJIA. (The DJIA recently peaked at a precise 50% rebound of its initial decline – that came into play at 26,440.)
A 10% correction in the DJIA, from its peak near 27,400, identifies 24,660 as a key psychological level.
So, the DJIA has pivotal support – and its initial, intermediate downside objective – at 24,450 – 24,750.
From a timing perspective, the DJIA is still expected to set (at least) a multi-week low in late-Aug. – the latest phase of an 11 – 12 week high (Oct. ’18) – low (Dec ’18) – low (Mar ’19) – low (Jun ’19) – (low; Aug 19 – 30) Cycle Progression.”
Stock markets validating likelihood for second sharp sell-off after Aug. 8 – 12 cycle high. Next danger period = Aug. 21 – 30! 40-Year Cycle AND 4-Year Cycle project Aug. ’15-style sell-off. What does this reveal about Sept. – Dec. 2019?? And 2020???
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.