McClellan Chart in Focus: A Follow-Up On 3 Charts. Rogue waves are a rare and peculiar phenomenon, both in the ocean and in other areas involving flow. By Tom McClellan.

 

Chart In Focus

A Follow-Up On 3 Charts

Chart In Focus

 March 08, 2018

We are at a fascinating turning point in the market’s path, and it is worth reviewing some recent Chart In Focus stories to see how they turned out, and to look at what might lie ahead.  I usually refrain from doing reruns, but in each case there is new information that I find interesting, and which I have already shared with our McClellan Market Report and Daily Edition subscribers.  I hope you will find them interesting too.  So here goes.

Back on Feb. 15, I wrote about “Stock Market In a Rogue Wave”.  Rogue waves are a rare and peculiar phenomenon, both in the ocean and in other areas involving flow.  The main points are that a rogue wave borrows energy from adjacent waves to build to a much greater height than the surrounding chop.  And the height of the crest tends to be matched by the depth of the adjacent trough.  After the rogue wave goes by, the fluid returns to the nominal level, or “sea level”, which in the stock market is harder to discern.

In the case of the DJIA’s rogue wave, the “sea level” equivalent is the trend which was in effect before the upward swoop and adjacent mini-crash.  That trend is depicted by a median line shown in the top chart this week.  The dead-cat bounce made it back almost exactly to the median line, and so the mission of the post rogue wave period has now been accomplished.  What happens next is not part of this model of stock price behavior.


 

Back on Jan. 25, I wrote about “Finally, An Actual Use For Bitcoin” noting that the price pattern in Bitcoin during 2017 was getting replicated in the movements of the DJIA.  Here is an update of that chart:

DJIA Following Bitcoin's Pattern

Right after I wrote that article, the pattern correlation broke down about as badly as it can, inverting to a DJIA bottom at the point when the Bitcoin price pattern said a top should occur.  And then the DJIA rebounded, but in a way that makes it appear that the DJIA is working to get back on track with Bitcoin’s chart pattern rather than staying inverted.

This is a classic case of my #1 Rule of Technical Analysis, which holds that “A phenomenon will remain in effect only until noticed.”  (And if you write about it, it will tend to fail.)

Bitcoin’s price plot was likely skewed by the anticipation of the introduction of Bitcoin futures trading which commenced Dec. 15, 2017.  Once futures trading got going as a real part of Bitcoin’s path through the universe, the relationship seems to have returned to being a case of following market forces, and thus the message of what’s ahead for the DJIA went back to working again.

If it keeps on working into the future, then the DJIA is facing a bottom in early April.  I think that bottom will actually arrive a bit earlier, as discussed in the latest issue of our twice monthly McClellan Market Report newsletter.  But the continued Bitcoin weakness is not good news for the bulls, assuming that the relationship really does hold up.

 

Back on Jan. 18, I wrote about a fun way of seeing the DJIA’s chart pattern in “Ending How It Began (Parabolically)?”  I compared it to a musical composition by Beethoven which two violinists could play from the same piece of sheet music, each reading the notes upside down from how the other one saw it.

Here is how that comparison turned out:

DJIA 2008-18 backwards

As that article hypothesized, the March 2009 bottom seems to have seen its echo in the Jan. 26, 2018 top.  The red line in this chart is the same as the black line, just rotated 180°.  If the pattern correlation continues to “work”, and that is a big IF, then stock prices have further to fall.

It is fun finding the ways in which the market reveals its intentions about the future.  Such insights do not necessarily continue to work as one expect them to, and so they do not deserve our unquestioning confidence.  But they sure are fun sometimes.

Tom McClellan
Editor, The McClellan Market Report

Related Charts

Jan 18, 2018
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Ending How It Began (Parabolically)?
Jan 25, 2018
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Finally, An Actual Use For Bitcoin
Feb 15, 2018
Enable Images to see this Chart
Stock Market In a Rogue Wave
 

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About the author

Sherman and Marian's son Tom McClellan has done extensive analytical spreadsheet development for the stock and commodities markets, including the synthesizing of the four-year Presidential Cycle Pattern. He has fine tuned the rules for interrelationships between financial markets to provide leading indications for important market and economic data. Tom is a graduate of the U.S. Military Academy at West Point where he studied aerospace engineering, and he served as an Army helicopter pilot for 11 years. He began his own study of market technical analysis while still in the Army, and discovered ways to expand the use of his parents' indicators to forecast future market turning points. Tom views the movements of prices in the financial market through the eyes of an engineer, which allows him to focus on what the data really say rather than interpreting events according to the same "conventional wisdom" used by other analysts. In 1993, he left the Army to join his father in pursuing a new career doing this type of analysis. Tom and Sherman spent the next 2 years refining their analysis techniques and laying groundwork. In April 1995 they launched their newsletter, The McClellan Market Report, an 8 page report covering the stock, bond, and gold markets, which is published twice a month. They utilize the unique indicators they have developed to present their view of the market's structure as well as their forecasts for future trend direction and the timing of turning points. A Daily Edition was added in February 1998 to give subscribers daily updates on their indicators and also provide market position indications for stocks, bonds and gold. Their subscribers range from individual investors to professional fund managers. Tom serves as editor of both publications, and runs the newsletter business from its location in Lakewood, WA.