Peter Eliades' Stockmarket Cycles update for Tuesday, January 26, 1999.We get the distinct feeling that something big is coming up here and our best guess is that it will be to the downside. Despite today's Dow follow-through, the downside projections that we gave you last week remain in effect. Add to that the fact that the Dow is up over 200 points in just two market days, while the daily advance-decline line is almost perfectly flat over that two day period and add to that the fact that the New York Financial Index which tends to lead the market was actually down today with the Dow up over 120 points. Add all those factors up and you have the makings for a potentially very big down day tomorrow or Thursday or both. On the other hand, if these downside projections are invalidated tomorrow,
then there could be some upside fireworks. We would rate the odds of a very big decline over the next few days as around 75%, the chance of a big advance at around 15%, and the chance of staying around these levels for a couple of days at only around 10%. In fairness we should note that the Dow did close slightly above the up-trend line that we discussed over the past few days and if it can stay above that line, it will obviously have renewed the bullish case. We do not expect that to occur, but we allow for it. If the market were not following the 1929 scenario so well, we would be very confident of a significant decline from these levels because of the historic divergences. Remember, for example, that the S&P made a new all
time high just a few weeks ago, with the CI-NCI ratio below .96. The only other time that has happened this century, has been back in 1929, but the 1929 similarities do give one pause and they do allow for some further craziness to the upside before the plug is pulled. Our projections should help us determine which direction to lead into. For right now, it is leading toward and immediate down hard.
Peter Eliades' Stockmarket Cycles update for Wednesday, January 27, 1999. Our sentiment remains unchanged from yesterday. Today the market did what it had to do to avoid invalidating the downside projections. They remain in effect. The market internals continue to look ugly with the advance-decline line going to a three month low today and finally today it appears to have decisively broken below the ledge of the lows formed by the readings on December 14, 16, and January 14. The Dow once again broke below the up-trend line to the closing lows of October 1, 8, December 14, and January 14, of this year. Yesterday we said that we would rate the odds of a very big decline in the market over the next few days as 75%.
Today's decline of over 120 points is not what we consider a big decline, at least not by itself. We were thinking more the area of 300-500 Dow points down over a period of a few days. Today was, of course, the potential beginning of such a move. Remember the statistics that we gave you on Monday relating to the very oversold levels that are seen within three weeks of major market tops.
The average maximum oversold reading reached on the ratio adjusted
McClellan Oscillator over the three week period after a major top was 86 and the average time period to reach such a reading was 13.2 market days.
We are now 12 market days from the top, so if January 8 was a major top and if the pattern is to be repeated as it has been for the last eight or nine important market tops, we should see some very poor breadth over the next two market days. Today the ratio adjusted McClellan closed at 34, a long distance away from the 86 that we would expect to see very soon if January 8 was the high. We should know very soon. |
