Intermediate Market Cycle Shows Its Face

It was on February 2, “Groundhog Day,” that the stock market’s intermediate cycle popped its head out of its hole.

On that day, the Dow Jones Industrial Average, shed 666 points or 2.5%. During the following trading session, the Dow lost another 1175 points, or 4.6%. That was a wake-up call for a country that had been lulled into a dreamy complacency by a market that did almost nothing but move higher.

But should investors really be on high alert? Or is the market just going to turn around and start posting all time highs once again? That’s certainly possible, but we don’t see it happening until the second half of this year. Check out our New Year’s Special for more on that one.

We believe that something needs to happen first. The stock market needs to complete its current intermediate market cycle. That means entering a corrective phase and moving lower into the projected bottom timing. And that process started on Groundhog Day.

Looking at the chart below, that big red bar on the right hand side represents the price action for February 2018. The large purple semicircles on the bottom are the intermediate market cycles.

We call this “cycle analysis”. The cycles start and finish based upon important lows in the price action.

Based upon our analysis, we project that the DJI will engage in choppy to lower price action until the cycle completes between May and July of 2018.

How low will it go? Well, we hit the 23.6% Fibonacci retracement level at 23,600 earlier this week. That signifies a 10% correction from the cycle high.

The next target would be the 38.2% retracement level at 22,500, which would represent a 15% correction. We believe that’s in play, as is the 50% level at 21,000.

For more detail on this analysis, check out this clip from our member-only “Big Picture Analysis” series.

Visit our site for more on our approach to using market cycles to analyze stocks.