Potential Market Reversal by May 2024

DJ:DJI   Dow Jones Industrial Average Index

I can't shake the feeling that a large market correction is around the corner and at the same time the market contradicts my sentiments by appearing stronger every day. So I decided to investigate the 1 Year Treasury Note ( US01Y ) which is directly affected by Fed Rates to see how the market correlated to those changes in the past. What I found leads me to believe that a steep -- but temporary -- correction is approaching between late March and early May 2024.

Historical Data (Feb 2016-Feb 2024)

While it may not always feel like it, the stock market appears to have an overall bullish affinity even during economic struggle such as can be seen during the pandemic of 2020. After an average of three FOMC (Federal Open Market Committee) meetings, a sharp correction took place within the FOMC meeting range or shortly following the third meeting. This is the case for all but the fourth window which actually manifested a reversal to what has become the rally we are experiencing today.

The chart above compares the US01Y (Top) to the SPX (Bottom Left) and DJI (Bottom Right). I interpreted this data as potentially two truths:

1) Institutional investors retreat during transitional periods then resurface when the outlook is more clear, typically reigniting the previous trend despite an overall trend change within Fed rates.

2) Fed rate changes are a precursor for market reversals. While not the only factor, they appear to hold a significant weight that if supported could lead to a reverse in market trajectory as can be seen after the third and fourth window of FOMC meetings.

**I only accounted for FOMC meetings where the 1 Year Treasury Note experienced significant trend changes**

Market Projections

I do not believe an apocalyptic correction is coming, but I do believe there will be a significant dip across the board following one of the next two consecutive FOMC meetings. The current dates for those meetings are March 19-20 and April 30 - May 1, 2024. It is my opinion that the 50%-61.8% Fibonacci Retracement levels serve as a good opportunity to enter a position should a correction occur. However, technical indicators should be closely watched for signs of a recovery before entering any positions.


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