Saturday, January 24, 2015

MTU Weekend Ed. - Tracking 2015 (1/23/15)

While stocks have rebounded nicely this past week, the rebound may be the first advance of a new upswing or wave C of a bearish upward flat. As such, we continue to track the top scenarios outlined in Near Term Tracking (1/16/15). See Chart 1. As discussed before, these near term scenarios may fit into the particular long term tracking scenarios in Chart 2 with the assumption that wave [3] off the 2009 low ended about a year ago. See What If Wave Three Ended A Year Ago? (1/9/15)

To make progress, SP500 naturally need to break away from the sideways range of 1970-2095 it has experienced over the past two months. On the bullish side, a gap above the range around a third wave would be convenient. On the bearish side, a convincing rejection by the upper end of the range would be sufficient.

At the suggestion of our reader Mkt Man, we revisit the decennial pattern and the presidential cycle we discussed in 2015 Outlook (1/2/5) and examine how well 2015 has been tracking historical tendencies. We are able to make the following observations based on the Dow Jones Industrial Average back to 1915.

January 2015 has not been tracking the historical average price tendencies associated with year 5 of the decennial pattern, nor year 3 of the presidential cycle. Chart 3 and Chart 4 offer evidence.

To the extent that the rest of January is influenced by the historical average price behavior, both the decennial pattern and the presidential cycle suggest that next week can be (very) bullish. See Chart 3 and Chart 4.

Besides historical average price tendencies, we notice that price actions this year has been most correlated with January 1955 within our sample of years ending with a 5 and being the 3rd year of the presidential cycle. Note that 1955 is also the 3rd year of the presidential cycle. Chart 5 also suggests a bullish remainder of January.

At the moment, it may be a stretch to project the full year 2015 price action based on the 1954-1955 price profile. Based on the similarity in price actions between 1954 and 2014 and the January tracking (Chart 5), a longer term visual could be useful. See Chart 6.

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