Last week was another terrible week. The US government was not able to resolve the debt limit problem. On Friday the news reports said the US government was very close to an agreement and the stock market rallied but these reports were overly positive, and the debt limit problem is nowhere near solved. The DJIA was up 328.69 on Friday but the DJIA still ended the week down 333.29 points. This debt limit issue has created a very negative sentiment in the stock market because this happened previously in 2011 and it caused a stock market crash. There are a lot of people who believe if the debt default date is reached then there will again be a stock market crash. I am very surprised the issue of the debt limit has not been resolved, and I have to consider the possibility it will not be resolved. If we reach June 1, 2023 and the debt limit issue has not been resolved there will probably be a stock market crash.
I wrote last week about how the current market must follow the historical cycle for a Master Time Factor forecast to be valid. The more data points that are following the historical cycle the better the forecast. On the chat below the red line is the 1962-1963 cycle which the current market is following. The green line is the current percent change line. The green percent change line for 2023 should be following the red 1963 line based on the price, the change-in-trend dates and the pattern. This correlation was very strong over the past year but has now broken down. Since the start of May 2023 when the debt limit problem has been in the news, the correlations have broken down. The market made a top on May 1, 2023 and has been declining since that time. This movement in the month of May is not following the 1963 pattern which shows a topping pattern between May 12 and June 8.
I currently have long positions that were entered around the March 15, 2023 bottom. If the debt limit issue is not resolved by Wednesday May 31, 2023 then I will exit all my long positions. I do not want to be holding long positions if there is a DJIA crash because the debt default date of June 1, 2023 is reached. Remember next week is a short week because of the Memorial Day holiday on Monday, and the congressional negotiators have gone home for the holiday. So, there are only two more workdays before June 1st.
As a summery, my current forecast for the DJIA is that the 2023 DJIA has broken the correlation with the 1963 cycle. This seems to be caused by fear of a market crash caused by the debt limit default issue. If the current DJIA does not return to following the 1963 cycle very soon I will start looking for a new historical cycle to forecast the DJIA.