Back in the late 1990’s, I wrote my final exam for my CMT designation. One of the questions on that exam had a chart of the DJIA with relevant volume, candlestick bars, etc. The exam asked for the student (me) to provide an analysis on the DJIA with some potential projections. It’s funny when I look back at that moment, because up until the exam, I hadn’t noticed that the Dow looked to be in an expanding pattern. Yet, there I was in the middle of the most important exam of my professional life – and I’m suddenly realizing that the Dow was demonstrating an expanding pattern! Thus, I wrote an entire breakdown of the evidence to that observation and my projections for the Dow. That expanding pattern – so suddenly recognized in the middle of a classroom examination – correctly predicted the 2000 – 2003 bear market.
If we look at the current DJIA chart, we will see an unclear picture – insofar as an expanding pattern. The most recent high – set earlier this year – is NOT higher than the high set last October. This probably negates the potential of the Dow forming an expanding pattern.
However, if we look at the chart of the S&P 500 – it would appear to be in an expanding pattern – albeit a rough one. The SPX put in a high that was marginally ahead of the October 2018 high. So it qualifies as an expanding pattern, but barely.
The NASDAQ composite also had a marginally higher high in May – qualifying it to be in a rough expanding pattern as well.
So too does the TSX 300 – in fact, it looks to be the best example of this pattern amongst our three examples.
All of these charts do show expanding volume for the initial 2/3rds of the pattern – which tends to be one of the signs of the “legitimacy” of most price patterns. For those interested, expanding patterns are actually kind of rare. They are considered as bearish predictor. My theory behind their predictive powers is that – if the market is progressively swinging so wildly from bullish to bearish – it is a sign of confusion. Such a pattern – when it occurs at the end of a long bull market (such as it did in the late 1990’s – and today) often leads to a bear market. Market participants are telling us, through their paranoid bull/bear swings, that they question the continuation of the long bull market. No confidence = no bull market.
I wouldn’t take this observation as a sign of my conviction that we are at the end of the bull market. Mostly because the expanding pattern doesn’t seem to be expanding in new highs as aggressively as the pattern typically displays. Having said that – the timing of the pattern, if it is indeed “legitimate”, might be not right. We’re about one decade into the current bull market. The 100 year Dow chart below shows us that its usually about 20 years from trough to peak for bulls. The only thought to suggest the potential of the current bear market coming to an end is the observation of the parabolic markets in 2017 (which I ranted on endlessly on this blog whilst it happened!!). Note that every long termed consolidation (aka the 1970’s…2018 – present) OR bear market (late 1920’s, late 1990’s, 2008-9) was proceeded by such a parabolic move on the markets. So, we’re set up from that parabolic move, and there is that rough looking expanding pattern.
I’d love to hear your take on all of this. Are we in for a storm, or is this just the pause that refreshes? Please comment below.
Keith on Bloomberg/BNN: tomorrow, Thursday June 20 at 6:00 PM
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I really believe this market wants to go higher. There is too much anticipation with regards to the trade war ending sometime this year, and the Federal Reserve, has our back, so to speak. Thus, there is much more gas in the tank, and we may just see the S&P500 burst to new highs this year, possibly 3200 before the big draw down sometime in 2020. We need to hear people taking about stocks at cocktail parties, on the buses, in the taxis, and when we do hear this chatter, you know we are at the peak. We are not there yet.
Good points Ray, thankyou.
I have a particular set of indicators that showed a bottom Dec. 26 ’18….a decline in the mar. 1’19 area….a peak around Apr 25 and a bottom around June 6. I’ve been off by a couple of days each time…but in the next month , we will at the very least, make a new high on the S&P….and possibly break 3000.
Here’s hoping !….cheers chris
Thanks Chris–sounds like a cycle indicator you are using…?
I am on the fence.
Mr. Trump’s endless tweets have more influence on the market than real numbers.
What’s the next trigger event?
FED returns to 0% rate and resume QE?
Or. N. Korea nukes someone?
Canadian gov’t bond yields on 3 year+ are still edging lower in the past three sessions. I am holding on to my bond holdings for now. My 2 cents.
Do you think the sectors are different? May be Investors are thinking different way, so old sectors are not working and new industries are moving so fast upward? All Canadian Marijuana stocks had help to move Canadian stocks market up, and same all IPO’s are working so great?
Old nothing works in this market, Dividend stocks are not working and risk is any time they can reduce this benefits to shareholders. I don’t think at this time their is any sign to reverse this market. Most welcome your reply
In a nutshell, SP, I think that there is ongoing rotation –look at the softening FANG stocks and the rising defensive sectors.
TA is about following the money. The federal reserve doesn’t track whether a government policy is conservative or socialist. It tracks money supply. The stuff I read has the U. S gov. paying debt down until middle of July(money to primary dealers goes into stocks). After which it will have to raise money (sell stocks). I regard Trump as a patriot (not a NWO agent). He is not a free agent on foreign policy matters. I think a bad economy will make him look bad come re-election time. The Federal reserve is a fractional reserve system that can manipulate money supply at will. Disrupt the disrupter if they can.
With bond yields so low one very common choice is to hold dividend paying equities and write covered calls. In fact those ETFs are very popular since they do it all for you in one nice package.
This alone should keep the equity market going up.
It may also put continued upward pressure on high yield stocks
I’m a buy and hold investor but I do monitor the over market by keeping track of the momentum of market breadth (NYSE Adv-Dec vol, Nasdaq Adv-Dec iss) and no I don’t use the McClellan stuff…I basically have set up a MACD indicator for market breadth using varying inputs for moving aves…I ignore the market indexes, I just prefer it that way. I use this info to give me a sense of the risk/reward situation in the market…plus even though I’m a buy and hold guy, I admit to remaining fascinated by market timing.
Anyway according to how I read things, the four year low was put at the end of December last year, so that makes me bullish. The four year cycle is the only one I concern myself with in the markets as I feel it has the most utility.
Thanks for listening, Gavin
Good input Gavin
Hi Keith nice chat on BNN tonight & very good analysis on the USD even if you were a few days behind.
Looking at the USD 1 year chart does it look like a triple top from April 26…. May 22…..May 31 breaking down recently & breaking it’s mid April support zone now heading to it’s March 20 low next would be Jan 31 & possibly go down to it’s Sept 20, 2018 low.
Copy & paste does turn out ok maybe you could post the chart
What do you think Keith is it starting to look like the USD is rolling over & that should be very bullish for both gold & silver which a silver ETF was one of your top picks tonight.
Cheers & all the best,
Marc in Gatineau
Yes–if the USD stays below the trendline described on the show, it would imply a bearish outlook, which adds credence to the gold/Silver trade
Thanks Keith. Love the patterns.
What I remember about approaching market peaks is people selling their homes to invest their nest eggs in the market.
ARE THESE BROADENING FORMATION DEPICTED HERE CALLED “MEGAPHONE PATTERN” AND DO YOU SEE BULLISH FLAG ON BOTH DOW (DJIA) AND NASDAQ (QQQ)?
I’ve not heard the name megaphone–but the name doesnt matter. Yes, the NAZ seems to be in a similar pattern.
Keith USD is on a downtick again today very bullish for gold.
Seems like the gold bulls are here for real Keith it’s still on a uptick again today, next gold price target close is Aug 23, 2013 close at $1395.70 if it can close there & say above that next target would be May 3, 2013 at $1464.20.
Silver it still lagging gold’s uptick which more often than not it does that but once it gets going it will outpace gold but there is also the commodity usage component about siver which it might have a lesser demand for it but it’s still a good trade play, time will tell.
Interesting times ahead in the gold & silver sector as a trader investor, I’ve seen & lived it before being a gold bug since 2000 it looks like we are in for another epic run which major, mid tier , junior producers along with royalty streamers should give us some excellent returns. Usually explorers are the last to get in on the party but they should do very well since the producer’
s in ground are depleting so they need to go out there & buy them out.
Cheers & all the best,
Marc in Gatineau
Good you identified your top picks as being meant for your more aggressive fund. If you could continue to make sure you identify which fund your top picks are meant for it would be very much appreciated. I have followed your blog for a long time and your message is altered a little bit with your new fund but I will continue to follow your ideas. Thanks.