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November 7, 2013

Stocks Ready to Tumble?

The stock market is in for a fight. With droves of traders and talking heads conditioned for persistent levitation at the hands of the Fed and anticipating imminent new highs across the indexes, equities instead cracked lower by about a percent. Yesterday, one commentator on CNBC was perplexed as to why the Nasdaq was "plunging"... the index was down a half percent at the time... so today's decline must be akin to a crash in his mind.

Today's move is important, however, because if equities are beginning a daily cycle decline, they will be leaving behind a Day 15 peak. A peak before Day 20 almost always results in a left-translated and failed cycle. That said, the previous daily cycle delivered an exception.

So you can see that an early peak does not guarantee a failed daily cycle, but such behavior still strongly suggests a bearish outcome.

Nevertheless, one down day does not confirm a daily cycle in decline. Since the current daily cycle does not possess a well-defined trend line by which to judge a cycle decline, I will be relying on my statistical trend system to provide an early indication of a trend change.

The weekly equity view does suggest that an intermediate-degree decline is due, implying that the current daily cycle should fail. Furthermore, equities are overdue for a yearly cycle decline.

Almost no one is looking for a 200-handle plunge by the S&P 500 in coming weeks. Cycle theory, however, suggests that such a decline is not only possible, but likely. I do not trade on suggestion, but I will be watching very closely for concrete trade triggers within my methodology in order to initiate a short position.


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