McClellan Chart In Focus: Rogue Wave Follow Up – By Tom McClellan


Rogue Wave Follow Up

Back on March 19, I wrote here about “Stock Market Showing Another Example of ‘Rogue Wave’ Behavior”.  This week’s chart updates that same chart from the article 3 months ago.  The only change is that 3 more months’ price data have been added.

In an oceanic rogue wave, the huge wave “borrows” energy from the adjacent waves, dwarfing the size of the surrounding chop.  One important feature of oceanic rogue waves is that the height of the crest above sea level is matched by the depth of the adjacent trough below sea level, making them all the more deadly for ships.

The principle operates in the financial markets as well, although we have to apply an expansive interpretation of what “sea level” means in a price chart.  For the article 3 months ago, I added a rough approximation of a regression line drawn through the data leading up to the February 2020 top.  The rebound off of the March 23, 2020 bottom has taken price back up above that median line, and now the sharp selloff on June 11 has taken prices back below it again.  It appears that the market has returned back to “sea level”, with a lot of help from the Fed running QE4.

I also featured in that March 2020 article an overlay comparison of the current chart of the DJIA with an actual plot of an oceanic rogue wave, as captured by a project known as MaxWave.  Here is an update of that comparison:

Rogue Wave DJIA

The alignment of the price structures leading up to the February 2020 top was not perfect, and the alignment of structures following the bottom has also not been perfect.  But the similarities nevertheless do exist. 

I had first made a comparison of prices to that MaxWave pattern years ago, after noticing the similarity of its pattern to the 1929 top and 1932 bottom.  A little bit of chart magic and stretching got the chart structures aligned in this comparison:

MaxWave rogue wave versus 1929-1932 DJIA

Sea level for the stock market in this case is an upward sloped line on this logarithmic scaled chart.  It is not perfect, but it works well enough.

The point about oceanic rogue waves is that eventually they pass, and the chop returns to normal size.  That same point operates in financial market rogue waves.  The difference is that in the ocean, the “sea level” remains mostly constant.  In the financial market rogue waves, any assignment of a momentary sea level has to be viewed as temporary.  Once the price returns to it after the rogue wave, some new trend can develop with some new definition of “sea level” for prices to oscillate above and below.

Tom McClellan
Editor, The McClellan Market Report

Related Charts

Mar 19, 2020
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Stock Market Showing Another Example of “Rogue Wave” Behavior
Dec 12, 2018
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Lumber Sees Rogue Wave, Now Ready For a Bounce
Dec 10, 2010
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After The 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.