Near-Term Trends Down in Stocks; Brief Bounce Likely. Energy/Equity Connection
Near-Term Trends Down in Stocks; Brief Bounce Likely. Energy/Equity Connection
11/14/18 Weekly Re-Lay Alert – The Energy/Equity Connection Revisited: One of the frequently-addressed topics in recent months was the strong connection/correlation between energy and equity markets. That correlation took center stage when energy markets were forecast to undergo an initial surge from Sept. 2017 into Jan. 2018, moving in lockstep with equities.
Both peaked in late-Jan. and both then suffered quick, sharp declines. Both were projected to see a trio of successive peaks in 2018 (though at different times) with a very negative period expected in the weeks/months surrounding Oct. 2018.
The Aug. 22, 2018 Alert revisited this topic as energy markets were fulfilling multi-month & multi-year cycles projecting a peak in 3Q 2018. That Alert observed:
“Since May 2015, Crude Oil and the overall equity markets have moved in similar trends. This does NOT mean that every rally and decline were in lockstep with each other.
And it does not suggest that every multi-month or multi-quarter or multi-year top in one was a corresponding extreme in the other. However, the general trends and cycles have coincided.
Both markets experienced significant drops into Aug. 24, 2015 and then suffered subsequent drops that bottomed in Jan./Feb. 2016. Both have rallied since then.
From early-2016, both Crude and the DJIA rallied for 3 – 4 months and then corrected for 2 months.
Both moved progressively higher into late-Jan. 2018, with the strongest rallies unfolding in July ’17 – Jan. ’18.
Both dropped sharply into early-Feb. ‘18 and have moved higher since then.
Both set intervening highs in late-May – early-June ‘18 but have since exceeded those highs.
Both, on a short-term basis, pulled back into Aug. 15/16 and then projected rallies back to their highs.
To reiterate, the intervening moves were often very different. And, the intervening swings were not in lockstep with each other. However, a cursory glance at both charts reveals a correction from May ’15 into Jan. ’16 and an unfolding uptrend since then.
The point?
The reason for addressing this has more to do with oil than with equities (although there is obviously overlap, particularly in an index like the S+P 500).
The 2017/2018 outlook for energy markets was to see a strong rally into Jan. 2018 and then subsequent highs…
Crude maintains its most critical and decisive resistance at 75.00 – 77.30/CL – a range that includes the yearly lows of 2011 & 2012 (support turned into resistance).”
Since then, the thinking was that both equities and energy markets would set significant peaks and see sharp sell-offs in Oct. 2018. The magnitude of these potential peaks is what makes them worth revisiting.
Since 3Q ’17, the outlook for energy markets has overlapped Middle East cycles – both of which focused on late-Sept. ’17 – late-Sept. ’18 as a ‘bullish’ period. Late-Sept. 2018 was expected to be the culmination of advances in oil markets and Middle East tensions.
That was due to many factors, including the monthly, quarterly and yearly cycles reiterated in the April 2018 INSIIDE Track. It explained:
“Crude Oil – Multi-year trend slowly turning up after fulfilling cycle low in early-2016 – the convergence of monthly & yearly cycles. Cycles turned bullish in 3Q ‘17 and could spur additional upside into 3Q 2018…
Looking out over the next 6 – 12 months, a decisive turning point is expected in 3Q 2018. Starting from the larger cycles and working down, the governing 1 – 3 year cycle is a 27 – 30 month cycle that has impacted Crude since July 2006, its penultimate high. 30 months later, Crude set a major bottom in Jan. 2009.
It then rallied for 27 – 28 months (into April/May ‘11) and subsequently set its Aug. 2013 peak another 27 – 28 months later. From there, it plummeted for 29 – 30 months, bottoming in Feb. 2016…If you look at this entire cycle from a quarterly basis, 3Q 2018 is the target cycle…
Overriding that is a ~5-year high – high cycle (3Q ‘08 – 3Q ‘13) that also targets 3Q 2018 – most likely for a peak.
Underlying it is a 15 – 16 month low (1Q ‘16) – low (2Q ‘16) Cycle Progression that aligns in 3Q 2018. The ascent of that low – low cycle argues for 3Q ‘18 being a high.”
Crude set an initial peak in early-Sept. but soon signaled that was not a final peak – only a 1 – 3 week top. It wasn’t until late-Sept. that Crude finally broke out to new highs as it was approaching the convergence of multiple weekly cycles in late-Sept./early-Oct., including a 16 – 17 Week Cycle, a 32 – 34 Week Cycle and the culmination of back-to-back 15-week advances.
That was reinforced with the Oct. 17 Alert, featuring the accompanying diagram and detailing this web of recurring cycles. It focused on the 15 – 17 Week Cycle and its multiples, highlighting the following:
Doubled again, it produces a 15 – 16-month cycle…A perfect example is the ~16-month low-low-(high) Cycle Progression that has unfolded in Crude – timing lows in Feb. ’16 & June ’17 followed by a ~16-month advance into early-Oct. ’18.
That ~16-month advance broke down into an ~8-month low (June ’17) – low (Feb. ’18) – high (Oct. ’18) Cycle Progression.”
The energy complex fulfilled all of these cycles and has plummeted since then. Crude & Unleaded Gas have retested their intra-year lows – completing a type of Intra-Year Inverted V (even though the peak did not occur at the mid-year point as that pattern normally produces) reversal lower…
Stock Indices extended their latest declines long enough to turn the daily trends back down… the daily trend reversals powerfully corroborate the outlook in the Nasdaq 100. That Index was expected to set its rebound peak in sync with weekly cycles (5-week high-high-high-high & 10-week low-high-high-high Cycle Progressions) that converged on Nov. 5 – 9 and begin a new decline from there.
It peaked on Nov. 7/8 and did it precisely at its upside target range (7210 – 7261/NQZ) while simultaneously testing and holding its weekly resistance, weekly trend point and descending weekly 21 Low MAC. That Index was projected to experience a deeper sell-off into this week, which is what has taken place.
The Indexes extended this sell-off into a fourth day, but maintain the potential for another rebound into next week. Those cycles do not dictate magnitude or price levels, which is why these other indicators need to filter that. If they reverse higher tomorrow, they would perpetuate an 11 – 12 trading day low-low-low-low-low-(low) cycle that has been in force since Aug. 23.
The cycles and action in the NQ-100 had already shown that a new decline was taking hold in tech stocks. Now, the daily trend reversals show that new declines may have already begun in the DJIA & ESZ…
From a slightly larger perspective, this action is corroborating the weekly trend patterns and the 4Q 2018 outlook. That should be kept in context. Equities were expected to see October plunges and, once they had turned their weekly trends down, a reactive 1 – 3 week bounce before a new decline took hold.
This action necessitates a repeat of what was emphasized in the Nov. 7 INSIIDE Track Stock Index Update. With the NQZ reaching its upside targets during its Nov. 5 – 9 cycle high, and the DJIA rebounding 76% of its October plunge (78.6% is often the extreme for a ‘2’ or ‘B’ wave retracement), equities had already expended most of their upside potential in price…
As long as the Nov. 8 high holds in the Nasdaq 100, the next intermediate low should be seen on [reserved for subscribers]”
Stocks turned their near-term trends back down after fulfilling weekly cycle highs on Nov. 5 – 9. A brief bounce could be seen into the coming week before a new downturn materializes. The action of late-Sept. – early-Nov. ’18 continues to reinforce expectations for late-2018/early-2019.
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.