Stock Market Signals Trigger Exit of ~Half of 3 – 5 Year Long Positions!
02/28/20 INSIIDE Track: “Stocks precisely fulfilled the latest phases of the 2-Year Cycle AND the 40-Year Cycle – as well as multiple indicators and some uncanny weekly cycles in the DJTA – all of which forecast a sharp sell-off during the second half of Feb. ‘20.
In the case of the Transports, that was the continuation of a multi-month downturn following the Jan. ‘20 peak of the 8-Month & 16-Month Cycles. That was also linked to the 6 – 8 week down cycle that would follow the Jan. 17 – 24 weekly cycle peak.
The uncanny nature of the 2-Year and 40-Year Cycles has been discussed repeatedly over the past two years and was the focus of multiple updates throughout the month of Feb. They began with a discussion on Feb. 5 of why the late-Jan. sell-off provided a textbook 4-Shadow Signal – exceeding the magnitude of the previous correction.
As described in the 2/05/20 Weekly Re-Lay Alert, that 4-Shadow Signal projected a subsequent 2 – 3 week rally (the exact same thing the 2-Year Cycle was forecasting) into mid-Feb. with some indexes expected to set new highs, some to set equal highs (double tops) and some to set lower highs.
That was expected to trigger a sharp drop… validating analysis for multiple 10 – 20% drops in 2018 – 2022.
At the same time, it was becoming clear the S+P 500 & Nasdaq 100 were being artificially supported by a handful of stocks (FAANGs) – just as they were in Sept. 2018. That was projected, in mid-Feb., to usher in a bearish period in the second half of Feb. The best way to explain the evolution of this topping process – and understand how/why this was projected and what it could mean for the coming months – is…
2-05-20 – “When multiple cycles or indicators converge and argue for the same conclusion, it provides the most valuable technical tool: Synergy…
4-Shadow Indicator
There are two simple techniques that often warn of an impending reversal. Both deal with the final corrective move before the end of a trend… This ‘warning sign’ is an omen of a terminating trend… it warns of an impending peak…”
As warned in early-Feb., the action of late-Jan. had triggered this ominous 4-Shadow Signal – projecting a final rally in the first part of Feb. and then a much larger sell-off… of a larger magnitude and duration. The eerie thing was that a unique parallel to late-Sept. ’18 was also unfolding…
The DJIA, DJCA & S+P 500 retested their highs, creating the potential for double tops. Meanwhile, the DJTA, Russell 2K (2000 stocks) and NYA (2000 stocks) rebounded to lower highs – reinforcing the monthly & weekly cycle peaks of late-Jan.
…this reinforces a similar situation that arose in 3Q ’18 when the FAANG stocks plus MSFT accounted for a dramatically-disproportionate percentage of the overall market’s gains. Recent weeks/months have seen a return of that pattern… have a significantly negative impact on the overall market – similar to 4Q ‘18.…
The DJTA continues to be the weakest index and appears to be leading a new reversal with this past week’s action. It often takes additional time for the other indexes to follow suit, so the majority of any sell-off could wait until after mid-Feb.
All of the indexes fulfilled the initial potential – for a sharp sell-off in late-Jan. (based on the 2-Year Cycle) – but subsequent action is ushering in the potential for a new, and potentially larger, sell-off to follow.”
And that was when the 2-Year & 40-Year Cycles powerfully corroborated that outlook – with the 40-Year Cycle arguing for a peak around Feb. 12/13, 2020 – just as on Feb. 12/13, 1980, before the DJIA plunged ~20% in less than two months. The DJIA peaked on Feb. 12, 2020!
Multiple other factors also argued for a peak on Feb. 13 – 17, 2020…
The S+P 500 and Nasdaq 100 (buoyed by FAANG stocks and a few other disproportionately bullish stocks) are rallying to new highs on the heels of turning their intra-month trends up. That signal projects advances into mid-month and up to monthly resistance.
Most have already reached monthly resistance, some while turning their intra-month trends up on Feb. 6 – so the timing aspect of that signal (a rally into Feb. 13 – 17) is the only remaining factor. That is another factor arguing for the majority of any second sell-off to wait until after mid-month…
In response to some questions about the 2-Year Cycle, it is an important time to revisit and update this uncanny cycle. Most recently, it was expected to trigger a late-Jan. sell-off and an early-Feb. low – ushering in a new rally…
Late-Jan./early-Feb. ‘20 was expected to be a close parallel to Jan./Feb. 2018 – when stocks suffered a quick, sharp ~2-week drop in late-Jan. and bottomed in the opening days of Feb. ’18…
In 2018, the lead indexes & stocks peaked on Jan. 16/17 and then plunged in late-Jan. – bottoming and reversing higher in the Feb. 3 – 12 time frame.
In 2020, the lead indexes & stocks peaked on Jan. 16/17 and then plunged in late-Jan. – bottoming and reversing higher in the Feb. 3 – 12 time frame.
In 2018, the lagging indexes & stocks condensed their decline to a 2-week/14-day drop in late-Jan. – bottoming and reversing higher in the Feb. 3 – 12 time frame.
In 2020, the lagging indexes & stocks condensed their decline to a 2-week/14-day drop in late-Jan. – bottoming and reversing higher in the Feb. 3 – 12 time frame.
In 2018, the indexes subsequently rallied for 2 – 3 weeks before setting intermediate highs.
In 2020, the indexes have rallied for almost 2 weeks, with some (those that turned their intra-month trends up last week) on track for add’l upside into Feb. 13 – 17… Where does that leave the indexes in the short-term?
They turned their intra-month trends up last week, extending the more likely time for an intermediate peak to mid-month (Feb. 13/14 or 17)…
The 4-Shadow signal discussed last week remains in place and projected this latest rally – spurring some indexes to new highs, some to equal highs (double tops) and some to lower highs – followed by a sharper sell-off.
That is what is unfolding… it warns of an impending peak.
It is still likely to usher in a significant top… the Transports could lead the other indexes…”
2-13-20 – “Stock Indexes remain in positive territory and are fulfilling their intra-month uptrend signals by rallying into mid-Feb… Those intra-month uptrends usher in the potential for an Intra-Month Inverted V pattern in February (initial low at start of month, peak at mid-month, and new lows at end of month).
On a broader scale, recent action continues to fulfill and validate 2-Year Cycle projections. Late-Jan./early-Feb. ‘20 was expected to be a close parallel to Jan./Feb. 2018 – when stocks suffered a quick, sharp ~2-week drop in late-Jan. and bottomed in the opening days of Feb. ’18…
So, what should follow?
In 2018, the indexes subsequently rallied for 2 – 3 weeks before setting intermediate highs.
In 2020, the indexes have rallied for almost 2 weeks, with the intra-month uptrends projecting add’l upside into Feb. 13 – 17.
And that is where the 2-Year Cycle is poised to intersect the 40-Year Cycle.
As repeatedly detailed, stock indexes have traded remarkably similar – in 2018 up to the present – to how they did in 1978 – 1980. The latest comparative phase involved an early-year pullback in Jan. 1980 – with stocks bottoming in the first three trading days of the new year – followed by a rally into Feb. 13, 1980… and then a sell-off into late-March ’80.
In 2020, stocks saw an early-year pullback in Jan. – with stocks bottoming in the first three trading days of the new year – followed by a rally into Feb. 13, 2020.
Coincidence? Perhaps.
But the similarities have been uncanny…”
On Feb. 13, 1980, the DJIA peaked and then dropped almost 10% into late-Feb. (as part of an overall ~20% decline into late-March ‘80).
On Feb. 12, 2020, the DJIA peaked and then dropped over 10% into late-Feb – a near perfect replica of the 40-Year Cycle.
Could more downside be seen as part of this overall decline?
Along with the 8-Month & 16-Month Cycles (that projected multi-month peaks in many stocks & indexes for late-Jan. 2020), the 4-Shadow Signal and these multi-year cycles detailed why a larger-magnitude decline was imminent and was expected to take hold in the second half of Feb. ’20.
In most cases, a 4-Shadow signal will trigger a break below the preceding low… As described in those Weekly Re-Lay excerpts, the overall action of the S+P 500 and Nasdaq 100 in Feb. ’20 was looking remarkably similar to late-Sept. ‘18 – when the FAANG stocks were the main driver of recent rallies and the few remaining stocks that were supporting the index averages.
Mid-Feb. action validated that comparison and ushered in a sell-off that should be similar to Oct. ’18… The weekly trend patterns should be one of the most revealing indicators… This would also help determine what to expect from the next convergence of monthly cycles – in April 2020.
3 – 5 year equity traders & investors could be holding about 50 – 60% long positions, having just exited another 10%.”
Stocks signaling end of multi-year rally as 40-Year Cycle, reinforced by Feb. 7 – 14 ‘Perfect Storm’ of sell signals, corroborated by late-Jan. ’20 ominous ‘4-Shadow Sell Signal’ project a much larger-magnitude sell-off into late-March ‘20. That reinforces ongoing outlook for decisive stock market peak in Jan. 2020 (latest phase of 16-month, 8-month and multi-year cycles – projecting at least a 3 – 6 month peak) – when the best chance for a new ~20% or larger sell-off emerged.
3 – 5 year traders & investors could be out of 40 – 50% of long positions, preparing for an even sharper decline… into the second half of March ‘20.
What Would Feb./March ’20 Stock Market Plunge Mean for Rest of 2020?
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.