On a String
On a String
An excerpt from this past weekend report within the Equities section. Consider membership here: Financial Tap
In equities this week, it makes sense to focus purely on technical analysis. During the past few months, I’ve outlined the likelihood that equities are well into a bear market decline that should last for 3-5 Investor Cycles (12-18 months). At this point, I don’t believe it makes sense to rehash it again.
Last week’s report was titled “All On the Same Side” to illustrate just how one-sided the markets had become. Not surprising then, equities bounced after forming a failed Daily Cycle and becoming very oversold. Since the January 20th Daily Cycle Low (DCL) had already confirmed a failed Investor Cycle, the failure of a following Cycle (on Feb 11th) was not a surprise. The Cycle failure was simply an extension of an already-apparent larger degree correction. However, as with every asset class, equities are subject to ebbs and flows on shorter time-frames, so a Daily Half Cycle Low rally was expected (past 8 sessions).
I noted previously that a 2nd half rally might be sharp, but would fall just short of the high from day 8. It is too early to know if the half cycle rally is finished, but a final Daily Cycle should always form a lower high before it begins a final decent into a deep Cycle Low. Since the current DC has failed and is only on day 22, without a new high, we can only assume that the coming weeks will bring a sizable sell-off into DC and IC Lows.
We expected a sizable rally, but need to avoid allowing it to flip our thinking to the bullish side – the bear is still very much alive. More than anything, the current rally has allowed oversold technicals and bearish sentiment to reset themselves from extreme levels. In a downtrend, counter-trend moves like we’re seeing at present act as profit taking events before the decline continues.
In this case, the rally has allowed the market to reset to a position where a sell-off into a deeper, final ICL can begin. There is always the chance that a market will go against a well-defined Cycle picture by rallying prematurely without a clean final Daily Cycle low, but that’s the exception and not the rule. At present, it does not look good for the bulls, and the Cycle count does not support any type of bullish outcome. I expect that equities will decline into a mid-March ICL before being treated to a large, counter-trend rally.
