Stocks Providing Ominous Signals for Late-Feb.; 2-Year Cycle & 4-Shadow Project Plunge into Feb. 26 – 28!
02/12/20 Weekly Re-Lay Alert: “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…
A low is still possible at the end of the month but it would now represent an Intra-Month Inverted V pattern (initial low at start of month, peak at mid-month, and new lows at end of 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. That was discussed in the Dec. 11 & 18 and Jan. 8, ’20 Alerts, quoting the Sept. 26, 2018 Alert – 720 Degrees: What the 2-Year Cycle Reveals:
This 2-Year Cycle has multiple facets, including the timing of related moves at a ~24-month interval. This is more likely when the market has been in a similar trend for several years.
In many instances, those similar moves will be on progressively higher or lower degrees (magnitudes) due to the progression of higher and lower magnitude waves.
A perfect example involved the following sequence on a 2-year interval:
– A moderate sell-off that bottomed on Feb. 3 – 12, 2014 (~1250/DJIA points or about a 7.5% decline).
– A sell-off of one larger degree that bottomed on Feb. 3 – 12, 2016 (~2500/DJIA points or about a 14% decline)
– A sell-off of one larger degree that bottomed on Feb. 3 – 12, 2018 (~3250/DJIA points or about a 12% decline).
Previously, the DJIA also had a decline of 900 points or 8.3% that bottomed on Feb. 3 – 12, 2010.”
The Jan. 8, ’20 Alert explained why stocks would likely wait until after mid-Jan. to suffer a quick, sharp sell-off:
Most indexes spiked down to rising daily 21 MACs and daily HLS levels before reversing higher.
The Nasdaq 100 already turned its intra-month trend up but the Dow & S+P 500 would need to generate daily closes above 28,872/DJIA & 3263.5/ ESH (and 10,994/DJTA) to turn their respective intra-month trends up and project additional upside into mid-month….
If that high stretches into the second half of Jan. ’20, it would also mimic how 2018 began – the latest phase of the 2-Year Cycle. In that case (and several prior instances on a two-year interval), it led to a sharp sell-off into early-Feb.
Could the pattern repeat in Jan./Feb. 2020? At least one other cycle lends some credence to this scenario. It is the 11 – 12 week cycle that has governed action in the DJ Transports throughout the past two years, beginning with that Jan. ’18 peak.
The next cycle in that sequence (illustrated on this page) is expected to be a subsequent high and comes into play on Jan. 20 – 24 (Jan. 27 – 31, at the latest) – when another 1 – 2 month peak is expected.
There are other (general) similarities to early-2018. 2017 was an up year, interrupted by a multi-week sell-off in Aug. ‘17. 2019 was similar.
In 2017, that uptrend resumed and carried stocks higher into Jan. 15 – 26, ‘18 before undergoing a sharp, 2 – 4 week drop into early-Feb. ‘18.
In 2019/2020, stocks resumed their uptrend after fulfilling late-Aug. ‘19 cycle lows and could extend a final peak into the second half of January ‘20… before experiencing a quick, sharp drop into early-Feb. ‘20.”
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.
Looking at it on a more individual basis, here are what a several key stocks did in fulfillment of the 2-Year Cycle – experiencing sharp declines in the second half of Jan. ’20 and then bottoming in early-Feb…
AAPL dropped about 8% in less than a week, bottoming precisely on Feb. 3.
GOOGL lost about 5%, dropping from Jan. 22 into Feb. 4. CSCO lost 7%.
SBUX dropped over 10% in a 2-week period in late-Jan. – turning back up – along with the 2-Year Cycle – on Feb. 3. Others were a bit more extreme…
3M (MMM; a DJIA component) plunged about 15% from mid-Jan. into Feb. 3.
Other DJIA components – like XOM & CVX – began their declines earlier but still plunged into early-Feb. and reinforced the 2-Year Cycle (losing 16% & 14%, respectively).
TRV lost 8%, NKE dropped 9% while PFE plunged over 10% in 4 days. UNH had a 2-week/10+% drop from late-Jan. into Feb. 3… all mirroring what has consistently occurred with the 2-Year Cycle.
DOW was even more extreme, plunging about 15% in 2 weeks and bottoming on Feb. 3. So, many of the DJIA components fulfilled the 2-Year Cycle outlook.
The Russell 2000 lost over 6% in late-Jan., turning back up on Feb. 3. Most of the primary indexes dropped about 4% before turning back up on Feb. 3.
Leading the pack (to the downside), the Transports dropped over 7% after fulfilling analysis for an intermediate peak and reversal lower on Jan. 20 – 24 – the latest phase of an 11 – 12 Week high-high-high-high-low-low-low-low-high-(high) Cycle Progression.
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.”
Stocks are fulfilling the 2-Year Cycle while preparing for a sharper sell-off in late-Feb. (beginning after mid-Feb.). An ominous 4-Shadow Signal concurs and warns that a much larger drop is on the horizon as DJTA weekly cycles and sell signals project plunge into Feb. 26 – 28.
Are FAANG Stocks About to Lose Their Supporting Influence?
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.