Introduction
We are entering a season when, historically, most of the year’s biggest dips have already occurred. Remember the crashes in 1929, 1987, 1997, and the back-to-back slide-downs in 1978 and 1979.
In my post “The dip that may only be a ripple” (#314), I showed you the composite cycle of the three mid-term analogs (1890, 1898, 1978) I have been following closely this year, as we are in a midterm year.
As you can see in the chart below, the DJIA has closely followed the analogs’ inflection points, with a correlation of 0.80 over the last year for the combined composite.
Also plotted in blue on the chart above is my index of cyclical variation (Helio), a line that tracks planetary pairs through their separating (more positive) and closing (more negative) phases, which aligns with that analysis. Note: the composite line, or index, does not correlate with the price level on the chart.
It may be a matter of time, and the DJIA may roll over to a low in October. We may see a short rebound there, but this may be short relief really into the end of the year, after which a downtrend could continue well into the end of next year, heading for a 5-year low by October-November 2027.
With interest rates rising and the conflict in the Strait of Hormuz still lingering, high oil prices may eventually weigh on the economy. Recent news about AI potentially going out of control may turn into bearish sentiment toward tech stocks. Sam Altman said in an exclusive interview with Fortune that an OpenAI IPO in 2026 would be “ill-advised”. So, there are enough reasons for caution.
Recently, the daily overbalance line on the DJIA broke, the first indication that the trend is weakening and may have changed. Here’s what the broken line could mean for the NDX, SPX, and DJIA.
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Disclaimer: This analysis is for informational and educational purposes only and should not be considered investment advice. Read our full disclaimer.
Disclosure: From time to time, I may hold positions in the securities mentioned.