Stocks Enter Consolidation; New Advance Likely in late-May… 40-Year Cycle Projects Larger Overall Rally.
05/06/20 Weekly Re-Lay Alert: “Stock Indices are intensifying a type of tug-of-war near recent highs with weaker stocks dropping to progressively lower lows as stronger stocks pull back to higher lows… and then stronger stocks rallying to progressively higher highs as the weaker stocks rebound to lower highs. That type of divergence could continue into mid-month and potentially longer.
Equities corrected after the DJIA initially attacked its multi-week upside target at 24,681 – 25,100. All of the indexes projected a quick drop into May 4/5, repeating an early-month pattern that was also seen in late-Sept./early-Oct., late-Nov./early-Dec., late-Dec./early-Jan. & late-Jan./early-Feb.
It was also very similar to what transpired in late-March/early-April when most indexes set daily high closes on the second to last trading day of the month, spiked higher on the last trading day of the month, and then sold off into the second trading day of the new month, before reversing back up. That is exactly what just transpired in late-April/early-May (even though some indexes could extend that into tomorrow).
The indexes fulfilled that while twice neutralizing their daily uptrends. So, not only did the May 4 low fulfill this daily cycle, it also identified a future reversal confirmation point for most indexes. It would now take daily closes below the May 4 lows (23,361/DJIA, 2771/ ESM & 8556/NQM) to turn the daily trends down and signal a higher-magnitude correction.
That would also turn the intra-month trends down (since it is now the low of the first three trading days of the new month). And, it would violate the May 4 daily cycle low, another sign of escalation. Until that occurs, the 3 – 5 week trends remain up in those indexes.
In the interim, the daily trend patterns leave open a window for the NQM and other stronger indexes to spike above last week’s high and create more divergence.
That is reinforced by a smaller-degree 4-Shadow Signal that was just generated by this recent sell-off – a drop that exceeded the magnitude of the previous multi-day sell-off. That often results in a retest of the highs (the April 29/30 highs, in this case) before a larger (multi-week instead of multi-day) sell-off follows.
This reinforces the outlook for some volatile and divergent congestion in the coming weeks with the DJTA and some other weaker stocks/indexes still capable of retesting or dropping below their March lows – at some point in 2Q ’20 – before a more significant bottom takes hold.
On a short-term basis, the Transports and even Industrials are likely to extend their current corrections…
One key level to watch over the next two days is around 23,170/DJIA. That level was already a crucial combination of weekly SPS and weekly HLS. It was just corroborated by the daily HLS for tomorrow (valid for two days) at 23,153/DJIA. A related level is ~7,660/DJTA.
If the Dow Indexes test and hold those levels, particularly if the ESM & NQM are holding at or above Monday’s lows, it would corroborate the potential for another short-term low followed by a 2 – 4 day rally.”
Stocks fulfill daily cycle lows in early-May with weaker stocks and indexes likely to drop to lower lows into mid-May. On a broader basis, stocks are steadily confirming the 40-Year Cycle and 2-Year Cycles that projected plunges into March 23 – 27, 2020 – the precise time the DJIA bottomed in 2018 AND 1980 – and subsequent advances into 3Q ’20 and potentially into 2Q ‘21.
What Does 2Q/3Q ’20 Likely Hold for Equities?
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.