A Year Ending In 7

 

It's been a remarkable year.

2016 opened with the worst January in history,

Despite the January Indicator signaling a bad year, we've ended with the DJIA traveling 2000 points in record time and the SPX jumping about 190 points from the Trump Low.

Can the breakout at the end of the year be trusted any more than the breakdown at the beginning of the year?

A daily SPX for 2016 shows the index has gone from its channel low to hit the upper channel line off the April and August highs.

In so doing, the SPX has also traced out an expanding triangle of Megaphone Top pattern.

The presumption is a return to the lower line which ties to around the key 2100 level — IF a sharp correction is on the table.

That would mean a 10% sell-off.

Remember, the 2100 level is key because it is 10 revs or 3600 degrees in price up from the 666 low.

The index spent 18 months respecting 2100, underscoring its significance.

As you know, 2287 ties to one square of 360 degrees above 2100. Could the recent rip be an overthrow/Buying Climax to a 7 year bull?

Remember since 2011 the SPX has not had a 20% correction.

So the recent explosion could be the cherry on top of a 5 year float.

And we know the history of the 5 year cycle.

On the above daily SPX for 2016, note that the important August high is 180 days/degrees from the early Feb low for the year.

Likewise from the intervening higher low for the year in late June, another 180 days/degrees ties to next week.

A turning point is on the table.

Additionally, markets often play out in 3's.

Note the Trump Bottom is defined by 3 drives to a low.

Similarly, as the SPX tagged the upper rail of the parallel channel, it too demonstrates 3 drives to a possible high: April, August and December.

What we have is a tale of two Megaphones — one depicted by the red trendlines starting from August, the other green.

The takeaway is that a break of the 18 month range defined by 2100 should confirm a big Bull Trap is in place.

Interestingly, the March '09 low was a big Bear Trap.

I am constantly looking for trendlines that have long-term significance and underpin cycles and internals.

Trendlines get short shrift, but sometimes the simplest and most direct road to Rome is best.

Trendlines are important because at prior historic tops and bottoms, there have always been meaningful trendlines that define the extremes of these times.

W. D. Gann stated that years ending in 7 are supposed to be fatal years in the market that either experience panicky selling or usher in major down turns.

Let's take a look at a monthly Dow from 1987 to see what trendlines show up.

The red trendline connects the 1987 top and the 2002 low and extends to current price levels.

The green channel lines connects the 1987 top to the 2008 low and the 2000 top and the 2007 top.

The Dow has risen to kiss the upper rail of this trendline right here. It is the THIRD tag of this trendline and we're going into a year ending in 7.

That doesn't mean, it can't Pinocchio the line — as it did in 2000.

It doesn't tell us WHEN in 2017 to expect the cycles to exert downside pressure.

But you have my roadmap cyclical composite for potential turns in 2017 from earlier this month.

Is it possible the SPX sees a decline to the lower rail of the above monthly chart near 1000 that starts in 2017?

If the blue trendline that ties the 1987 low to all the lows of the past 6 years (in other words excluding the Selling Climax in 2009) is broken, anything goes.

Currently this line ties to around 1900.

Is it possible another 50% haircut, third in 17 years is on the table?

No one is expecting this, but then few were expecting then in 2000 and 2007 either.

Few were expecting this year to be up after January flashed red indicators.

Few were expecting the DJIA to rocket 2000 points on a Trump win.

Never say never.  Remember the study I did earlier this year on the 17 year cycle?

To briefly recap,

It was 17 years from the major 1932 low the beginning of a secular bull in 1949.

17 years from 1949 ties to the top of a secular bear starting in 1966.

Interestingly, that bear did the most damage 7 years after 1966 following the false breakout in JANUARY 1973.

This rhymes with the 7 years since 2009 for a turning point.

17 years after 1966 ties to 1983. A major secular bull market started in 1982.

17 years from 1983 gives 2000 when a secular bear market began.
2017 is 17 years later.

Is the market making a low or a high?

Interestingly, this is the FIFTH cycle of 17 years since 1932.

Above we showed the pattern of 3 drives to a high. There is an interesting mirror image foldback to the current 3 drives to a possible high from the year 2000 that mirrors the secular bear market top in late 1966 which led to 3 drives to a low in 1974.

Given the pattern, is a major new bull market beginning after 7 years of rally?

Conclusion. Above we mentioned that Gann referred to years ending in 7 as fatal years, years of panic or years that usher in panicky conditions.

History is replete with them. 1907 and the Rich Man's panic. 1937, 1957, 1977, 1987, 2007 (Top).

But the market can do anything and often doesn't do the same thing twice in a row.

For example, after the 1907 panic, the market was unscathed in 1927.

Likewise after the 1987 panic, the market was unscathed in 1997.

Interestingly, 1927 shrugged off the cycle as did 1997. But there was hell to pay in both cases a few years later.

In both instances, ignoring the cycles led to lost decades in the 1930's and the 2000's.

Interestingly, it looked like the market would escape this cycle going into the end of 2007.

But a gorilla rang the doorbell in 2008.

It is going to be interesting to see how this cycle operates in 2017, but given how 10 years ago it waited until year-end, I can't help but wonder if the wheels come off from the get go in 2017.

For Mr. Market, it's always pay me now or pay me later.