Stocks Plunging in Fulfillment of Multiple Cycles & Indicators!
02/24/20 INSIIDE Track Stock Index Update: “Stock Indexes plunged today, fulfilling what has been discussed in recent days and recent weeks. They continue to provide uncanny parallels to 2018, perpetuating the 2-Year Cycle.
In 2018, the lead indexes & stocks peaked on Jan. 16/17 and then plunged in late-Jan., reversed higher in early-Feb., rallied for 18 – 20 days, and then plunged for 4 – 5 days.
In 2020, the lead indexes & stocks peaked on Jan. 16/17 and then plunged in late-Jan., reversed higher in early-Feb., rallied for 18 – 20 days, and then plunged for 4 days.
This action also is fulfilling several of the indicators discussed earlier in February that set the stage for Intra-Month Inverted V Reversals lower – in which an initial low is set at the beginning of the month, a peak is set near mid-month, and a drop to lower lows occurs at the end of the month…
The Feb. 5 and Feb. 12 Weekly Re-Lay Alerts addressed other (more significant) indicators that were warning of an imminent, multi-week plunge – expected to exceed the magnitude of recent declines.
One of the key indicators was a 4-Shadow signal that warned of a final rally in Feb. – with some indexes setting higher highs while others set lower highs – before all of them plunged together late in the month…
The Intra-Month Trend Indicator
— The intra-month trend (up, down or neutral) is determined by a daily close outside of the price range of the first three trading days of the month. As a result, a confirmed intra-month trend cannot be determined until the close of the fourth trading day, at the earliest.
— An intra-month uptrend projects a rally to monthly resistance and/or into mid-month (ideally both)… If a market is going to set an early-month low, it should do so in the first 3 – 5 trading days without turning the intra-month trend down…
The markets have just completed the third trading day of February, so this indicator now becomes a primary focus. However, the other indicators need to also be reviewed so that this one can be placed in proper context with the potential for corroborating synergy…
The V or Inverted V is the other primary intra-month pattern in which a market hits a high or low in the opening days of the month and then trades to the opposite extreme leading into mid-month. It then reverses and trades back to its early-month extreme and retests or exceeds the original high or low set at the beginning of the month. The DJIA produced a textbook Intra-Month Inverted V Reversal lower in Jan. ’20…
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. They are the penultimate wave… or the wave before the ultimate wave (in an overall series of waves). One deals directly with time while the other focuses on price.
In each case, the final corrective move – before a final rally (and subsequent high) or decline (and subsequent low) – is actually a revealing indication (foreshadowing) of what is to come. This move is commonly known in Elliott Wave terminology as Wave 4… thus the name 4-Shadow.
In a typical uptrend, the market spends far more time in a rallying mode then it does declining. When it does retrace, the corrections are usually violent and sudden — correcting an overbought condition in a matter of days or weeks. On the weekly charts, the late-2018 stock sell-off is a perfect example of this.
If 4Q ‘18 had been the start of a bear market, it would have spent far more time putting in a high, retesting subsequent resistance levels and slowly turning momentum and psychology mixed before a substantial decline. It did not…
For a valid 4-Shadow signal, a market will exceed both the duration and magnitude of the preceding correction – warning of an impending top.
In other words, if the most recent correction lasted two weeks and saw the DJIA drop 500 points – the ensuing correction would need to last longer than two weeks and/or drop more than 500 points (ideally it would do both) in order to generate a 4-Shadow signal. This ‘warning sign’ is an omen of a terminating trend.
Depending on the strength of the underlying trend (an uptrend in this example), the ensuing action – after the 4-Shadow signal has been generated – can take three basic and relatively similar forms…
The third gives the benefit of the doubt to the existing uptrend with the final rally surging to convincing new highs but falling short of the magnitude of previous recent rallies. While this shows additional strength on a near-term basis, it warns of an impending peak.
In all three cases, the market experiences a final rally after the 4-Shadow signal is generated. The only distinction is where that subsequent rally peaks (below, at, or above the preceding peak).
The 4-Shadow signal has its roots in Elliott Wave Theory and Gann Analysis…
In most indexes (all three primary indexes and many others), they experienced successively smaller corrections in May ’19, then July/Aug. ’19, then late-Sept./early-Oct. ’19, then late-Nov./early-Dec. ’19 and finally in late-Dec. ‘19/early-Jan. ’20.
Then, in late-Jan. ‘20, they suffered sell-offs that exceeded the magnitudes of both the Dec./Jan. and the Nov./Dec. corrections… warning of an impending peak.
That 4-Shadow signal projects a subsequent rally – some to new highs, some to equal highs (double tops) and some to lower highs – followed by a sharper sell-off.”
2-12-20 – “Stock Indices remain in positive territory… They are reinforcing the potential for a divergent top of a slightly higher magnitude (3 – 5 week instead of 3 – 5 day) with the majority of the remaining indexes likely to wait until after mid-Feb. to suffer new declines.
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 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…
All these stocks and indexes fulfilled the latest expectation linked to the 2-Year Cycle… turning focus forward to one of the next phases of it…
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 with the primary indexes, spurred by a few key stocks, surging to new highs even as so many others remain below their Jan. highs.
As discussed last week, the prevailing 4-Shadow signal in those indexes gives the benefit of the doubt to the existing uptrend with the final rally surging to convincing new highs but falling short of the magnitude of previous recent rallies.
While this shows additional strength on a near-term basis, it warns of an impending peak… It is still likely to usher in a significant top… the Transports could lead the other indexes – even if only by a day or two. (Since Nov., the DJTA has had four rallies that lasted longer than a week. The first three each lasted 9 or 10 trading days. The current one just completed 8 trading days of rallying.)
The DJTA is still targeted for a second decline into Feb. 26 – 28 (180 degrees/6 months from their Aug. 27/28 low and the culmination of multiple daily high-high-low and low-low-low Cycle Progressions). That would perpetuate the 12 – 14 week low-low-low-low Cycle Progression that timed the early-Dec. low.
Its initial decline lasted 14 days (Jan. 17 – 31). If the second decline matches that (‘c = a’ wave structure) and begins on Feb. 12 – 14, it would project a drop into Feb. 26 – 28.”
The majority of indexes are fulfilling the 4-Shadow Signal – producing another sell-off that is of a larger magnitude than the preceding one (which was also larger than the one that preceded it).
Most of them have dropped below the late-Jan./early-Feb. lows – the low of the 4-Shadow Signal decline – confirming that signal. In most cases, this is the start of a much larger process. That will continue to [reserved for subscribers]”
Stocks plunging in line with 2-Year Cycle & over-arching 40-Year Cycles – initially fulfilling ominous 4-Shadow Signal triggered in late-Jan. That warned that a much larger drop and was corroborated by DJTA weekly cycles – projecting a plunge into late-Feb./early-March.
What Does 4-Shadow Signal Bode for Rest of 2020?
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.