Stocks Increasing Likelihood for Multi-Month Bottom!
10/14/22 INSIIDE Track Update – “Stock indices (and a host of other markets) fulfilled the Oct 12 Weekly Re-Lay Alert analysis for a brief (violent?) spike low and reversal (higher in stocks, bonds, etc. and lower in the US Dollar) on Oct 13, coinciding with the release of the Sept ’22 CPI Report.
However, they still need to do substantial work – in the form of upside price breaks and indicator triggers – to signal that anything more than another 3 – 5 day low is intact.
To review that recent analysis:
10-12-22 – “Markets trade on expectations. They are always discounting events (expectations) for the future. When the stock market has been steadily declining and interest rates steadily advancing into a critical CPI Report (Oct 13), the market has already discounted – or ‘built into’ the current price levels – all but the most bearish scenario.
So, when the report is released, those markets immediately pivot their focus to the next ‘big thing’. If the highest CPI in history is reported, but it is not anything beyond what was expected, the current price level (stocks/bonds/Dollar, etc.) already reflects that and could paradoxically head the opposite direction (up).
Of course, it often provides a small window of opportunity for the real novice traders – the ‘Johnny-come-latelys’ to wake up, hear the news, and reactively sell stocks… helping to create a bottom. It then (often) takes off to the upside since there is nothing left – that has not already been considered and factored into current price levels – to drive the market any lower…
If the CPI is wildly bearish, higher than anyone’s expectations, those markets would likely plunge for 30 – 60 minutes… and then set a bottom at significantly lower levels… From a fundamental standpoint, several factors continue to point to Sept ‘22 as the ideal time for a peak in multiple inflation factors and indicators…”
The Sept ’22 CPI came out bearish, stocks (and bonds, currencies, metals, cryptos) spiked lower for 30 – 60 minutes, and then they all surged in violent rallies that now need confirmation.
That is particularly true in stocks, which remain in the midst of what had been forecast (throughout 2021) to be a bearish 1 – 2 year period when multi-decade (2022), multi-year (2022), multi-month (Jan ’22), multi-week & multi-day (both in early-Jan ’22) cycles were projecting a peak and an overall decline into/through 2023… potentially paralleling the sell-off of 1973 – 1974.
On a weekly & monthly basis, some key Stock Indices continue to hold their mid-June lows in what has become 3 – 6 month bottoms.
On a trend and indicator basis, most stocks and stock indices spiked below their mid-June lows, fulfilling the weekly trend and intra-year trend sell signals of mid-Aug… and subsequent cycle downturn in mid-Sept. The Russell 2000 & S+P Midcap 400 would need to give weekly closes below those mid-June lows to extend these declines.
In order to signal a multi-week bottom, conversely, the intra-month trends (and the daily trends in the DJIA, ESZ & NQZ) need to turn up. That requires daily closes above 30,455/DJIA, 3820/ESZ & 11,711/NQZ…
They continue to attack major 3 – 6 and 6 – 12-month support & downside targets at 3560 – 3610/SPX and 10,700 – 11,100/NQ, maintaining the potential for a more substantial rebound following the recent drops to new lows. Until the intra-month trends turn up, however, that is only (unrealized) potential.
There are a few other factors arguing for a more substantial rebound from the recent (or imminent) lows.
First is the action of the monthly 21 MACs. This has been a textbook progression of this indicator – and related price movement – since the Nov ‘21/Jan ’22 peaks. The indexes quickly dropped into, and ultimately below, their rising monthly 21 MACs during the sell-offs into mid-June.
They then rallied back with the stronger indexes testing their flattening monthly 21 High MACs in mid-Aug ’22 – as the weaker indexes tested their flattening monthly 21 Low MACs – and then they all sold off and closed (Sept ’22 monthly close) well below their monthly 21 Low MACs as those averages began to turn down.
That is another confirmation that a 1 – 2 year decline is unfolding but that trend reversal confirmation – like some others – often times an intervening low and allows for a rally back to the now-descending monthly 21 Low MACs… before a sharper sell-off. (This is a broader indicator with more leeway than others so it does not remove the potential for an additional spike low before that potential rally.)
Second is the trio of weekly cycles that are governing the DJIA & other indices.
The larger of these is the 33 – 35-week/~8-month high-high-high-(high) Cycle Progression that helped time the mid-Aug ‘22 peak – 33 – 35 weeks from the early-Jan ’22 peak that was 33 – 35 weeks from the May ’21 peak that was 33 – 35 weeks from the Sept ’20 peak. The next phase projects a multi-month low for late-Mar/early-Apr ’23 (with a mid-point cycle in mid-Dec ’22).
At the same time, however, the Russell 2000, S+P Midcap 400 & DJTA have been forming a closely related cycle between the lows (32 – 33 weeks in duration) and a ~16-week mid-cycle. The recent lows perpetuated a ~16-week high (early-Nov ’21)-low-low-low-(low; late-Sept/early-Oct ’22) Cycle Progression that should prompt a 2 – 4 week – and possibly longer – rebound.
In a moderate scenario (not most bullish, not most bearish), the DJIA could rally about the same magnitude as it did in late-Feb – mid-April ’22… taking it back up to ~32,000/DJIA. That is also right where the monthly 21 Low MAC comes into play and where the descending weekly 21 High MAC will be in late-Oct and possibly early-Nov. And, it is where the latest two weekly LHRs converge. And, it is where the DJIA would rebound .618 of its latest decline.
(The DJTA has seen two successive rebounds of ~2,500 points. A third, ~2,500 point rally would take it back up to ~14,500/DJTA IF the current lows hold.)
For now, the intra-month trends remain the key. They are neutral in all but the NQ-100… If a larger-scale rally is to remain possible, stock indexes should NOT close below their Oct 3 lows and SHOULD soon close above their Oct 4/5 highs.”
Stock indexes sold off into the recurrence of an uncanny ~15-Week Cycle that projects a 1 – 2 month bottom by/on Sept 30, reinforced by several indexes dropping to new 2022 lows. More importantly, they have fulfilled 9 – 12 month downside wave structures and project a higher-magnitude rally in the coming month(s). A bottoming phase should now begin to unfold… and could lead to a 15 – 20% DJIA gain in 4Q ’22 (see Oct ’22 INSIIDE Track for details).
A final, potentially violent spike low on the Oct 13 CPI Report was expected, and fulfilled, and could lead to a multi-week or multi-month rally.
On a broader basis, stocks are reinforcing longer-term analysis for a 1 – 2 year peak in early-Jan ’22 followed by a 6 – 12 month plunge in 2022. See related publications for additional analysis.
How Would Late-Sept ’22 Low Reinforce Overall 2022/2023 Outlook?
Why is Higher-Magnitude Rally Expected in 4Q ‘22??
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.