Saturday, December 31, 2011

The outlook for 2012

In 2012 we start what many refer to as the K-Wave winter.  That is expected to last 3-5 years.  Of course, if we pull a Japan and keep propping up failed corporations and  providing "stimulus" (QE3-QEn) it could last much longer than 3-5 years. 

Recently I discussed the longer cycles:
  • The 120 year Grand (Mega) Super cycle which last bottomed in the early 1890s with many bank failures (pre FED), high unemployment and workers rioting in the streets.  It could be called a Depression, but since there was little government interference it was severe and recovery was fairly quick say compared to the 1930s.  If we use 1892 as the start of that then 2012 is 120 years.
  • Then there is the Super Cycle  (the economic cycle is called the K-Wave) of 60 years.  The last bottom according to experts was around 1952 after the end of the Korean War.  We had a nicely expanding economy in the 50s and a good part of the 60s after this cycle bottomed.  It is now 2012 (60 years later).  This cycle varies from 56-64 years with 60 years being the average.  So it could have up to 4 years left to a bottom.
  • Then there is the Mini Super Cycle of 30 years.  Last bottom around 1982. Add 30 to 1982 and you have 2012.  Government intervention may have pushed the next bottom forward a couple of years.
  • Then there is the 6 year cycle which probably topped in May of 2011.
So we have "at least" 4 longer term cycles which are in a down phase and should push to a bottom over the next 2-3 years.  No one knows for sure how far down this will push the economy or the stock markets.  It could be a lot!!!  There is a lot of debt out there (sovereign, corporate, individual) that will not (can not) be repaid and will have to be written off.  This reduction of assets on balance sheets should result in deflation.  Expect a lot of financial pain and panic over the next 3 or so years and expect it to start in 2012.  Europe is a mess, emerging markets are starting to see slower growth and government debt keeps growing.  This is not a recipe for economic growth.

This is the BIG picture the stock markets will be operating in - in 2012.  There will be downside pressure all year from these longer cycles.  Still we trade in shorter time frames and there should be ample volatility for those nimble enough to take advantage.  Nothing is ever sure - so it is probably a good idea to always have longs/shorts to hedge and sell longs on moves up and buy back on pullbacks.  You lighten up on shorts on pullbacks and increase them on rallies.

So using the Wall Cycle (142 days, 100TDs, 20 weeks) I have tried to provide you a general outlook for the coming year.  We should see a bottom by mid January, a top  mid to late March, a bottom in early June, a top in mid August, a bottom in mid October and finally a top around Christmas.  Now each Wall cycle is composed of quarter Wall cycles (around 25 TDs - a lunar cycle or 22.5TD cycle?) that will give you some shorter time frames for trading.  It is those shorter time frames we will look at on a weekly or daily basis.

Keep in mind the longer term bias should be down for 2012 so we could be down 10%, 20% or 50% for the year. Here is a chart (projection) for 2012 of the shorter Wall cycles with Bradley turn dates noted:

Hope you have a profitable 2012.  2011 could have been better, but at least for me it was better than 0.5% in a savings account.


Friday, December 30, 2011

Bradley Turn dates 2012

2012 Bradley Turn Dates List

most important dates
March 15, 2012
June 12, 2012
July 28, 2012
Dec 12, 2012
Other Bradley Turn Dates
1/11 & 1/28
2/16 & 2/22
4/11 & 4/23
8/14 $ 8/25
11/1 & 11/14

Wednesday, December 28, 2011

12-29-2011 outlook

Appears the market should open up and drift down during the day.

GL traders.  Have a good year in 2012.

12-28 sniffing out cycles

From David Knox Barker:
Note the variation in the "quarter wall" cycle which could explain the variation we are seeing in swing trade cycles.  I recently posted suggesting though that we may be looking at a 35TD cycle (as well as a 70TD cycle - half a Wall cycle).  Here is  that interpretation:

Notice the recent suggested top in the 35TD cycle (Dec 23) and the probability of a bottom by mid January (Wall cycle bottom).  GL traders.

Thursday, December 22, 2011


It appears that the 20TD cycle bottomed about 2 days earlier than projected.  Makes me wonder was this a 17.5-18TD cycle.  Here is what I am looking at trying to decide if I need to make changes and if so what.

You opinion, feedback and ideas would be appreciated.  Should we be looking for  17.5TD, 35TD, 70TD  cycles?

Monday, December 19, 2011

12-20-2011 outlook

The market continues to suggest that a cycle longer than those I normally track for swing trades is having a noticeable impact.  I believe that cycle is the 20 week (Wall cycle) which is down for the next 3-4 weeks.  Here is that cycle: 

FWIW here is my interpretation of the SPX shorter swing cycles:
If I am right about the longer cycle the market bias should be negative for the next 3 or so weeks.  GL traders.

12-19-2011 outlook

Friday showed a slight gain as expected.  Given the 40TD DPO projection one would expect more upside.  This may move the market slightly higher today.  Looking at the situation over the weekend it appears to me that we have a 20 week (Wall) cycle that should bottom by early 2012 which may prevent much of a move up as the 40TD up and 20 week down are off setting each other.  If this proves out we may have little change going into Christmas and sink the week after Christmas. 

Her is my interpretation of the SPX swing cycles:

GL traders.  Uncertainty reigns.  

Friday, December 16, 2011

12-16-2011 outlook

Finally got it right as we closed up.  It has not been a good week over all as I have been too optimistic - expecting the market to muddle higher as it sold off.  I feel we still have some up side potential as we have sold down under the expected level based on the 40TD DPO.

The 40TD cycle is up, the 20TD cycle is down - slight negative bias, but possibly some upside as the market is lower than expected based on DPOs.  The 10TD cycle is down and the 5TD cycle is up  The 5TD cycle should be a bit stronger than the 10TD cycle giving us some possible upside.  the 2.5TD cycle starts out up and tops by around 11am - should provide some strength at the open.

I believe the market opens to the up side and may fade later in the day.  It is triple witching Friday so anything is possible.

Her is my interpretation of the SPX swing cycles:

GL traders.  Be careful  

Wednesday, December 14, 2011

12-15-2011 outlook

Another day, another miss.  The market is now considerably below where one would expect based on the 40TD DPO (amplitude).  Took a look at the 20TD DPO and it is around 86 points (over 10 days up or down that is about 8.6 points a day).  The DPO for the 40TD works out to about 5.7 points a day.  So on average the 20TD cycle is about 3 points stronger to the downside than the 40TD cycle is to the upside.

At the beginning the week we were above where the DPO suggested for the 40TD cycle.  So we have corrected that, the 9 points (3 days at 3 points a day) that the 20TD DPO exceeded the 40TD cycle DPO and then some.  We are now at a deficit as to what is expected.  This should provide some fuel for a pop over the next 2-3 days.  We'll see.

Tomorrow the 40TD cycle is up and the 20TD cycle is down - slight downside bias.  The 10TD cycle has turned down, the 5TD cycle and 2.5TD cycles turned up.  This should provide an upside bias.  It is possible we get a break in the sell down tomorrow. 

Here is my interpretation of the SPX swing cycles:

Gl traders.  Let's see what tomorrow brings.

12-14-2011 outlook

I expected today to be mostly sideways.  This scenario was working too until the FOMC reported, then the market sank.  We are now at a discount to what the DPO (amplitude) for the 40TD cycle would suggest at this point in the cycle.(13days x 6pts = 78; 1158 + 78 = 1236).   So far the 20TD cycle seems to be winning in the battle between the 40TD cycle (up) and the 20TD cycle (down).  Still we could have some upside pressure building.

Tomorrow we have the 40TD cycle up and 20TD cycle down.  They should to a large extent cancel each other.  We got under 1224 support (50 DMA) and the recovered somewhat.  It appears that longer cycles down may be having more influence (lower highs, lower lows) since mid year. If so there will be a negative bias to the market for an extended period (see post on longer term outlook).

The 10TD cycle is up and probably tops by end of day. The 5TD cycle and 2.5TD cycles are down and should bottom by end of day.  It appears there should be a down bias tomorrow, but there may be some pressure to the upside with trading below the level expected based on the 40TD DPO being higher than the closing level.

So I expect we move in a range of 1215-1240 tomorrow and close within +/-5 points of today's close.  Here is my interpretation of the swing cycles:

GL traders.  Enjoy the holiday season.  

Monday, December 12, 2011

12-13-2011 outlook

I opined that we would have a "slight" upward bias today.  Seems the market got drunk on Europe having a plan Friday and the hangover hit over the weekend.  So the market not only was down, but down more than I would have thought likely.  At least I was right about the VIX calming down. 

So we appear to have one cycle  - the 40TD cycle - trying to push up and another cycle - the 20TD cycle - trying to push down.  These cycles seem fairly evenly match.  If I had to judge the advantage at this time it seems the 20TD cycle has a slight advantage as today's low point was less than Thursday's low point and Friday's high point was less than Wednesday's high point.  So the push down seems a bit stronger at this time in the up-down-up-down playing out of this war of the cycles.  Have we seen  the high for this cyclic series?  We may have - time will tell.

So we continue to muddle and today we tested a key FIB at 1228 and moved above that by the close.  So we have the 40TD cycle up and 20TD cycle down.  One day the 40TD seems to dominate, the next day the 20TD seems to dominate.  If this pattern continues tomorrow should be up.   Tomorrow the 10TD cycle should be up, the 5TD cycle down (offsetting).  The 2.5TD cycle tops during the day, so that is fairly neutral also.  Overall the bias appears to be neutral unless one of the longer cycles asserts itself. The market is trading at the level we would expect based on the amplitude of the 40TD cycle.

Here is the SPX swing cycles:

GL traders.  Relax, enjoy the holidays - there is no law that you have to trade every day.

Sunday, December 11, 2011

12-12-2011 outlook

I told you Wednesday I expected any correction to be modest  (which we got Thursday).  Then I told you Thursday I expected Friday to be up with a top range around 1250 (which got exceeded).  So where do we go from here?

The 40TD cycle continues up, but the 20TD cycle is now down.  Given the off setting factor of the 20TD cycle any upside is limited.  I have taken a look at the next 2-3 weeks and I believe we muddle higher.  Some are talking of testing the last highs in the 1290s, others are talking about new highs in the 1300s.  Looking at the DPO for the 40TD cycle I believe both of these levels are too high.  We have about 8 TDs left in the 40TD cycle to the top and IMO there is about 20 points of upside left over that 8 days because the market is trading above where the DPO would project using a daily average from the bottom. 

Here is the next few weeks as projected using a daily chart for the SPX:

As you can see the 40TD DPO is projecting a high around 1277 (a lower high).  Given the influence of longer cycles this is not surprising.  As a confirmation check I also looked at RWM (inverse Russell 2000 ETF) to see what it was projecting and it appears it is not yet bottoming and should bottom around Dec 21-22 just as the SPX is projected to top.  Here is the RWM:

Given this - volatility should abate and the VIX decline into the Dec 21-23 time frame.  I suppose this makes sense in that we probably will not be getting a lot of news/rumors out of Europe for a while now that they have a plan for a plan.  Also there are several data points to be reported over the next few days and unless they are horrible (which I do not expect) there may not be much to move the market either way.   IMO it is too late to go long on a swing trade and too early to go short (I expect to be sitting on the sidelines making no moves).

So how about Monday?  We have the 40TD cycle up and 20TD cycle down as previously mentioned.  The 10TD cycle is up.  The 5TD cycle is topping and the 2.5TD cycle bottoming during the day.  This should give us a slight upward bias for the day.

Here is the swing cycles for the SPX:

 GL traders.  Relax, don't press to make a trade and enjoy the holiday season.

Saturday, December 10, 2011

12-10 The long term outlook - part II

As I showed you in Part I we have 3 very long cycles (120 year, 60 year, 30 year) that should bottom sometime between the start of 2012 and 2014.  Now FED/other Central Banks/government  intervention could affect the exact timing of this bottoming, but current expectations is it should happen withing the next 2-3 years.

Kress says a cycle gets its hard "mo" down during the last 1/8 (12.5%) of the cycle.  So the last 15 years (1/8 x 120) of the 120 year cycle should be hard down.  That point probably was reached with the market peak in 1999 and would put the bottom in 2014.  The 60 year cycle should be hard down its last 7.5 years.  The 2007 peak probably represents the point at which the the 60 year cycle started its hard push down.  The 30 year cycle should have started its hard push down around May of 2010 near the "flash crash"  and be hard down for 3.75 years.

A cycle we have yet touched on is the 12 year cycle.  There are five 12 year cycles in the Super cycle and 10 in the Grand Super Cycle.  Last bottom was the pullback of 2002 (which implies a bottom in 2014).  It should be hard down its last 1.5 years (1/8 x 12 = 1.5) starting in mid 2012.  So by mid year 2012 we have the 120 year cycle, the 60 year cycle, the 30 year cycle and 12 year cycle in hard "mo" down.  I think it can be concluded this would create the potential for a market that could lose 50% or more of its value over a 2 year period like we saw in 2008-2009 only turbo charged.

Here is how all these cycles and their "hard down" phases line up:

 As you can see - starting by mid 2012 all these cycles are in a hard down phase....

The 12 year cycle is made up of two 6 year cycles.  The second 6 year cycle should be hard down in the final bottoming phase (about the final 9 months).  Droke believes this cycle topped (early) in May of this year (would project a bottom in 2014).

One last cycle to consider is the inventory cycle.  Some call it a 4 year cycle (others call it the Kitchin cycle).  Even though it can vary the average length is around 42 months (3.5 years).   Inventory data suggests  that  inventory got replenished from the 2008-2009 recession (which helped drive the recovery).  Here is the inventory data - see for yourself:

In any case this cycle is now down and should bottom in the 3rd quarter of 2012.  Just as it bottoms the 12 year cycle should enter its hard down phase negating any upside from this cycle in 2012-2013.

Here is how all this fits into the longer term picture:

As I have from time to time discussed the Kitchin cycle and its component Wall cycles in my swing cycles discussion you should now have a complete picture.

12-10 The long term outlook - Part I

I don't often comment on the longer term outlook as my purpose is to try and provide information that will help you improve your swing trading results.  It is important though I believe you understand the longer term view.  I believe we have a couple of blueprints that help us understand the likely outcomes. 

First there is Japan and the continued intervention in the economy the last 20 years.  There have been many stimulus programs in Japan with limited success.  The bad debt racked up in the 70s and 80s is still in the process of being run off.  So we can see that government intervention extends the financial flushing process.  Arguably the pain is the same as a quick reset (recession/depression), but it is spread over a longer period and inhibits a quick recovery.

Second there is the mortgage/housing situation  in the US.  We see as mortgage debt gets repudiated by non-payment housing prices deflate.  Now imagine this happens with large corporations.  Yes, I know - you hear it every day - corporations are flush with cash.  Yet, you see large corporations like MSFT and IBM floating large bond offerings.  Yes, they show large cash balances - but they also show large debt balances on their balance sheets.  So what is the truth?  According to Federal Reserve numbers corporations have $30 trillion in debt.  That is twice the Federal government debt.  We can assume from this there exists a few cash rich companies, but overall there is a lot of corporate debt that could get repudiated (and this leads to deflation as investor balance sheets take huge hits). 

Then there is sovereign debt.  Europe gave us a plan to have a plan by March (assuming they can work the details out).  Leaves me with a warm and fuzzy feeling.  NOT.  There are going to be sovereign failures.  In Europe at this time you have Greece, Ireland, Portugal, Spain and Italy as potential failed sovereigns.   This list probably will grow....    Then there is China.  Yes China.  They papered over financial crises in 1999 and 2004.  They took failed debt and put it in a SIV.  These SIVs gave the banks bonds for this failed debt.  Those banks are carrying those bonds on their books at full value.  It is magic - bad debt becomes good debt.  In reality the banks in China will be lucky if those bonds are worth 20% of face value.  China is a disaster waiting to happen.

Unless the US changes direction - stops racking up debt and balances its budget they are headed down the same road as Europe (and China).    And we know from our mortgage blueprint that repudiation of debt leads to deflation.  The FED can try, but I doubt even the FED can print enough money to address the problems likely to hit the global economy over the next 2-3 years.  Think about it.  Has QE1 and QE2 fixed the economy.  The FED added a lot of GSE and treasury debt to its balance sheet.  Now this supposedly adds liquidity and makes it easier to get business loans.  It hasn't.  You have this little thing called velocity of money.  Back in 2006-2007 the velocity was high.  Every dollar may turn over 2 or 3 times a week.  At 3 times velocity ever $1000 provided $3000 of spending a week.  The velocity of money has slowed to a crawl now (in comparsion).  Let's say the velocity is now 1 times a week and every $1000 provides $1000 of spending in a week.  The FED's QE efforts may have prevented spending from falling off a cliff, but it has not provided much in the way of increased net economic activity.  It doesn't matter how much money the FED prints - if that money has no velocity spending remains stagnant.   Reduced (stagnant) spending leads to deflation (see the housing blueprint and spending in that sector) not inflation.

People understand that they are getting nothing in the way of interest so they are using any excess income to pay off CCs, car loans and mortgages.  Paying off a CC (avoiding 20% interest) is like getting 20% interest on that money.  Maybe you have a 7% car loan or 5% mortgage - paying those off give you the equivalent of 7% and 5% respectively on your money.   But this is not new spending - it is payment for past spending so it adds little in the way of economic stimulus.  So with zero interest on savings and high interest on debt people are behaving rationally and reducing debt and FED QE efforts will do nothing to change this.  Not only that FED zero interest rate policy is depriving savers of income they might actually spend (if they received it to spend).  They say don't fight the FED - in this situation the FED seems powerless to make a difference and the natural economic evolution will happen.  Fed and government policy (see Japan reference above) may have delayed and elongated the the economic cleansing, but it has not stopped it.  It will happen.

Question is - what path do we take.  Do we continue to have FED/government interference like Japan (or FDR during the 30s) or do we get out of the way and let the cleansing proceed at an accelerated rate.  The second choice means severe pain and losses and shrunken balance sheets (sharp deflation), but it also means a faster path to a vigorous recovery.  Others explain it better than I can:

So why should you believe a correction is on the way?  We had 2% (revised) growth in the 3rd qtr and have projected growth in the 4th qtr.  Just a couple of things you may have noted this week.  First Texas Instruments, Dupont and some lesser corporations issued warnings this past week.  Second announced job reductions were announced by Citi, Astra Zenaca and others.  These are not the announcements one expects to see in a healthy expanding economy.

As to cycles and what they tell us.  In 1770s the country was getting ready to go (and did) to war with England.  Not the best of times.  In the early 1890s the country was in a severe depression and workers were rioting in places like Cleveland.  That is 120 years from mid 1770s to mid 1890s.  It is now about 120 years since the mid 1890s.  If theory turns into reality expect the bottom of the 120 year Grand (Mega) Super Cycle soon.  Actually it has been hard down since the market peak in 1999.  According to Kress a long cycle spends about 1/8 of its total length (12.5%) in a hard down phase.  For the 120 year Grand Super Cycle that is 15 years.  if we add 15 years to 1999 we get 2014 as an expected bottom to the Grand Super Cycle

The Grand Super cycle is composed of two 60 year cycles called the Super Cycles (K-Wave).   The second of these two Super Cycles should bottom along with the Grand Super Cycle.  Most cycle analysts agree the last super cycle bottom after the Korean War in 1952.  I have seen claims it was as early as 1949 - still it was near the early 1950s.  If we add 60 years to 1952 we get 2012.  Now some experts claim that without Fed/government interference we would already be bottoming on these two longer cycles.  Each Super Cycle is made up of two mini-Super cycle of 30 years (4 in a Grand Super Cycle).  It is commonly believe 1982 was the last mini-Super cycle bottom.  Thirty years later would be 2012...  Again others explain this better than I ever could:

Her is my interpretation of the super cycles (I have allowed for a 2 year delay to bottom due to Fed?government interference:

To be continued   

Thursday, December 8, 2011

12-09-2011 outlook

Update:  Correction - no OPEX today.

The market futures did break above 1266-1267 as I suggested could happen, but failed to hold that and opened red.  So the market closed down as expected.  I believe the market confirmed that the 20TD cycle topped yesterday (adds faith in my changes last weekend).

With the pullback to 1234 we are now fairly close to the expected level from using the 40TD DPO to guage an appropriate level (7pts x 11 days = 77 pts; 1158 + 77 = 1235).  This does not mean the market cannot exceed this level to the downside - but it does suggest limited downside   IMO.

The 20TD cycle showed a burst of strength today as it turned down.  So this show of strength has me asking - what is the upside potential from here.  It may be fairly limited  (60 points or so based on the 40TD DPO over the next 9 days). 

Tomorrow is OPEX Friday.  We also get the Europe plan for a plan.   So it may be an interesting day.  I would think any potential upside may occur early in the day (the 40TD, 10TD, 5TD cycles are up.The 2.5TD cycle tops in the morning).  The 20TD cycle is down (hard?).  So the bias for the entire day should be up - stronger in the morning and weaker later in the day.  Fairly volatile due to OPEX.  The 50 DMA around 1218 should provide support.  So lets say a range of 1218 to 1250 tomorrow.

Here is my interpretation of the SPX swing cycles:
Gl Traders.

Wednesday, December 7, 2011

12-08-2011 outlook

I projected that today would be neutral to down biased.  Well, we were down most of the day and closed mixed.   Guess I should have said down to neutral to have the order right.  Hehehe

Tomorrow should be a transition day.  Could we break the 1266-1267 level and run to 1292.  We could, but I think that would be premature.  Fact is we are still at an elevated level based on the 40TD DPO of 140 points (1158 + 140 = 1298) at 1260.  IMO the market is about 30 points ahead of the expected level (10 days x 7 points = 70; 1158 + 70 = 1128).   So it seems to me we should go up about 40 points and could go down about 30 points between now and Dec 22.  May get some volatility with Friday being OPEX triple witching. 

I suspect we may see strength into the 20TD top (break above 1267 and get the bulls all excited?) then pull back toward the end of the day (get the bears all excited?)  Something for everybody with a moderate down day as we get the Europe plan for a plan in March and options expiration on Friday.

The 10TD, 5TD and 2.5TD cycles bottom tomorrow.  The 40TD cycle is up.  The 20TD cycle tops. 

Here is my interpretation of the SPX swing cycles:

GL traders.  Be careful - I expect any pullback (if any) to be very moderate as the 40TD cycle continues up.  This is partially based on looking at the Russell Inverse ETF (RWM) and the chart seems to indicate more downside (market up),  Here is RWM:

Tuesday, December 6, 2011

12-07-2011 outlook

How was that for a neutral bias as I opined?  Tested the upper end of the range I suggested, but not the lower end - so shoot me.  Hehehe 

Tomorrow the 20TD cycle is up and should top by day's end (or early Thursday).  The 40TD cycle is up.  The 10TD, 5TD and 2.5TD cycles are down.  No expected news I am aware of that should impact the market - so we will get news or a rumor that will roil the market (that is how it always works isn't it?).

I suspect the bias should be neutral to down tomorrow.  We have had several up/flat days since Nov 28 so we are over due a correction.  Besides we are trading above the level expected based on the 40TD's DPO (140 / 20 = 7 pts a day; 7 x 9 = 63; 1160 + 63 - 1223 expected level) and this will get corrected by moving sideways several days or a correction).

My interpretation of the SPX swing cycles:

GL traders.  Do your own analysis

Monday, December 5, 2011

12-06-2011 outlook

Today was much as expected, so hopefully our adjustments are correct.  Today we heard Europe has a plan to have a plan by March.  I am impressed - hope you were.  I am sure the talking heads will continue to push this the whole week.  Not sure though it is relevant to market action. 

Seems S&P may throw water on the fire.  Something about a negative outlook on 17 Eurozone nations (doubts about their credit ratings or something).    Guess this should offset the cheery talk from the talking heads at CNBC.....

OK, that is the background for an OPEX week (which might cause a bit of volatility).  Who knows?  Don't believe there is any major data releases this week.

So we have the 40TD and 20TD cycles up tomorrow.  The 10TD cycle  and 5TD cycles are down.  The 2.5TD cycle tops in the afternoon.  Overall seems fairly neutral bias.  Maybe up some in the morning and a pull back in the afternoon.  Seems the 1265 area (200 DMA) is providing resistance to the upside.  Looking at the DPO for the 40TD cycle it appears the market is above the expected upside (7  X 8  = 56) of 56 points from the bottom so this could/will at some point provide some down side pressure.  So a range of 1240-1265 seems like a reasonable expectation.

Here is the SPX swing cycles (my interpretation):

GL traders.  Do your own analysis.

Sunday, December 4, 2011

12-05-2011 outlook

From time to time the market action requires a new evaluation of whether the cycles being used accurately represents the market data.  Argue with the market at your own peril.  I have taken a fresh look and decided that I needed to make adjustments in my interpretation of the cycles.  The best fit of the data appears to be a 40TD and 20TD combination of cycles.  Gann theory suggest eighths of 90 (45TDs, 22.5TDs), but the theoretical should not be viewed rigidly if it does not explain market action.

So here goes.  The 40TD cycle is up (next 15 days until Dec 23) , the 20TD cycle is up next 4 days (until Dec 9), the 5TD cycle is up Monday.  The 10TD cycle is down as is the 2.5TD cycle.  So the bias should be up Monday but less so that the first part of last week.  By Tuesday the bias may slip to being slightly down?

Here is the SPX swing cycles (my interpretation):

GL traders.  I hope my adjustments better explains the future market action.

Friday, December 2, 2011

12-03-2011 reassessing swing cycles

As you probably know my projections seem to have been out of sync this week with the actual market action.  So I had to take a look at the data to try and determine if I needed to make adjustments.  Ideally the swing cycles would be 45TDs, 33.75TDs, 22.5TD,  11.25TDs, etc (this is based on Gann's eights of 90).  Those are the lengths one expects to find, but there is no "law" saying they have to be that length.  the 22.5TD cycle may actually be 20 days or 24 days for example.  My task is to interpret the data not try to fit it into some rigid framework.   So with that in mind I began a reassessment of the lengths I was using.  Looking at the longer cycles first here is what my assessment first revealed:

So it appears instead of a 33.75TD cycle or 45TD cycle we have a 40TD cycle .  Hurst explains this occurrence I believe of where you get a combination of 2 cycles into a length that is an approximate average of 2 common cycles.  Next I looked for component cycles and here is what I found:

So there appears to be a 20TD component.  Further examination leads me to believe 40TD, 20TD, 10TD, 5TD and 2.5TD cycles explain market action data.  This is the combination of swing cycles I will use in my swing cycle analysis until it no longer appears to explain the data.  Let me know if I need to look at fine tuning this.  Maybe I should use 39 days or 41 days instead of 40 days. 

Thursday, December 1, 2011

12-02-2011 outlook

Not a lot of movement today.  I suppose we could get news out of Europe over night.  We know in the morning we get Nov employment numbers.   Unless a huge surprise probably not a big market mover,  So not much of a change from today.

 The 22.5TD cycles and its component cycles should bottom tomorrow. If we get a 2-3% dip it would be a long buying opportunity.  On the other hand if we get a 2-3% rise might justify buying a short ETF like RWM for a short trade because in my opinion the market will be out of sync with the cycles.

My interpretation of the SPX swing cycles:

GL traders.  Have a good day and weekend.

Wednesday, November 30, 2011

12-01-2011 outlook

Did I mention - nearing a bottom so things might get a bit tricky?  Darn if I didn't.  On Monday Europe had another plan for a plan the market rallied.  By Wednesday morning it seems the world's central bankers felt the financial system was in danger of freezing up and opened the money spigot full flow.  Nothing like a little central bank interference to mess up the cycles.....  This does tell us the central bankers are afraid of a major dysfunction in the world's financial systems.  We have seen this movie before and didn't like the ending.

Took a look at the cycles to see if I need to make adjustments.  At this time it is unclear what those adjustments would be so I will continue with current placement of cycles.    So what happens tomorrow?  I don't have a clue (the cycles are within 2 trading days of what should have been a bottom, but because of central bank intervention that outcome seems unlikely).  So, don't fight the FED and don't fight the tape.

Here is my interpretation of the swing cycles:
GL traders.  If the cycles provide a substantive dip might be a good time to pick up a couple of long positions, but be patient (cash in a market where you could get a freeze up is not a bad position - and IMO the European situation is no where near to being solved).  Keep in mind Droke said the 6 year cycle topped in October.  Also the Kitchin cycle (inventory cycle) should be down and people may decide after today's central bank action to not spend for Christmas.  So the setup for a major drop in the market may be nearly in place.

Tuesday, November 29, 2011

11-30-2011 outlook

The CNBC talking heads spent the day telling us how the market didn't seem to want to go down.  I spent the day thinking - not a lot of follow through on the big run up yesterday didn't seem to indicate it wanted to go up (either).  But then I did tell you I expected a +/- 10 point range today.  I think the more significant fact is the NAZ spent most of the day in the red and we closed mixed.

After the close Standard and Poors lowered the ratings on about 35 of the world's largest banks (C, BAC, Wells, MS and GS in the US).  Seems to have the futures in the red.

Tomorrow shows the potential to be a big down day as every swing cycle except the 33.75TD cycle is down.  Here is the SPX swing cycles (my interpretation):

GL traders.  Market could get tricky here as we approach what should be a bottom by Friday.

11-29-2011 outlook

I mentioned in my last outlook that markets never go in one direction for extended periods (more than a few days).  The market had over shot to the downside and we got an extreme pop to the upside.  This did a lot to correct the market level and should allow the market/cycles to complete their bottoming process by the end of the week.  It appears that process should complete by Friday Dec 2.  As I mentioned - in the near term we had limited downside potential to fulfill that bottom.   NOTE: my estimate is the 20 week Wall cycle should not bottom until Dec 9 or a little later and could result in a lower low and will at least retard any upside the first full week of December.

The 22.5TD cycle (and related shorter cycles) should bottom this week.  The bias should remain to the downside, but the up cycles and downside continue to offset each other today.  So any move up or down should be relatively small (+/- 10 points) IMO.

Here is the SPX swing cycles (my interpretation):

GL traders.  Do your own analysis, I could be wrong.

Sunday, November 27, 2011

11-28-2011 outlook

The half day Friday continued to show weakness.  As we all know the market does not go in one direction, but will reverse at some point.  I believe that point will be reached as early as Dec 1 (could be earlier), but my work indicates it should be Dec 1 or Dec 2.   I will be getting rid of all my short positions (QID and RWM) while I have profits.  I also will be buying back covered calls I wrote on my long positions at a nice profit.  I expect by Dec 2 or Dec 3 I will be adding to my long positions (have to see how the market acts by then). 

Took a look at some EW blogs and they seem overly pessimistic to me talking about lows in the low 900s on the S&P.  Not saying we won't get there, just that we should see a very tradeable bounce in December.  Looked at some other blogs and some of them are talking about the low 1000's.  Again seems overly pessimistic to me.  So I took a look at the S&P.  We have the shorter cycles that should bottom around Dec 1.  We have the 20 week Wall cycle which should bottom by mid December.  The most pessimistic projection is the 20 week Wall cycle (DPO estimate) showing a low around 1130.  Here is that chart:

Could we over shoot 1130 and see lows below that.  We absolutely could.  So we watch the market and adjust expectations as the market dictates and be ready to buy any big dips after Dec 1.  I doubt we will see the 1000 area though - much less 900 near term.

The outlook for Monday is for some continued weakness.  We may see reduced volatility.    We have the 22.5TD cycle and 11.25TD cycle are down.  The 2.8TD cycle is bottoming.  The 33.75TD cycle and 5.625TD cycles are up.  Overall these cycles cancel out.  The 20 week Wall cycle is down.  So the bias is down.

Here is the SPX swing cycles:

GL traders.  Do your own analysis.  Watch for the change ahead.

Thursday, November 24, 2011

11-25-2011 outlook

My outlook for Wednesday was a total miss.  Friday is half a day....

The 34TD cycle is up.  The 4.6TD cycle is up.  The 22TD cycle, 11.2TD cycle and 2.8TD cycle are down.   Also it appears there are longer cycles down and at work, so I expect we continue to see weakness in the market.  This should continue until Dec 1/2. 

Here is the SPX swing cycles (my interpretation):

GL traders.  Hope you had a good Thanksgiving.  Get prepared to cover shorts and go long toward the end of next week?  Do your own analysis.

Wednesday, November 23, 2011

The 22.5TD cycle dominance

Why is it at times a cycle appears dominant and at other times it appears to fade.  I would suggest to you that it depends on the alignment with longer cycles.  If the longer cycle and shorter cycle are aligned so they are headed the same direction then the shorter cycle seems to have become dominant.

Specifically - at this time the 22.5TD cycles appears to be dominant.  As you know the longer cycles have within them shorter cycles that are fractions (1/2, 1/4, 1/8, etc) of the longer cycle.   This leads us to suspect that the 22.5TD cycle is a fraction (1/2) of a longer 45TD  cycle. A 45TD cycle is just under 2 months.  If we look at a chart we see there was a major bottom the first of Oct.  And it appears we will get another notable bottom around Dec 1 (about 45 TDs).    Looking back farther there was another major bottom the first part of August (another 45TDs).  This seems to support the probability that there is a 45TD cycle made up of two 22.5TD cycles.  So at this time the run to the bottom by the 22.5TD cycle is supported by the 45TD cycle also bottoming in conjunction with the 22.5TD cycle.

Here is how it looks from a cycle perspective:

Tuesday, November 22, 2011

11-23-2011 outlook

I said today should trade in a narrow range.  Check.  I said there should be a slight down bias.  Check.  I said at the end of the day we should be largely unchanged.  Check  (less than 1/2% down).  So pretty much on target.

The 34TD cycle is down and the 22TD cycle is down.  If the 22TD cycle is dominant as I think this gives us a slight down bias from these 2 cycles.  The 11.2TD cycle is up and tops by end of day, the 5.6TD cycle is down and bottoms by end of day.  These 2 cycles should pretty much cancel each other out.  The 2.8TD cycle is up and could provide 8-10 points of potential upside.  The 22TD cycle is down and gives us 3.5 or  so points of downside.  So over all tomorrow should have a slight up side bias.  So I expect we again trade in a fairly narrow range and close green.

Here is the SPX swing cycles (my interpretation):

GL traders.  Do your own analysis.

Monday, November 21, 2011

11-22-2011 outlook

Today exceeded my downside target some.  We did meet the projected downside based on the 34TD cycle amplitude (105 pts or so top to bottom).  IMO the 34TD cycle bottomed mid day and as I suggested we did get a bit of bounce off that bottom.

So we now have the 34TD cycle up and the 22TD cycle down.  Based on most recent DPO values these two cycles should largely offset, but I suspect given the apparent dominance of the 22TD cycle it may provide a slight down side bias.   The 11.2TD cycle is up and the 5.6TD cycle is down and should largely offset.  The 2.8TD cycle bottoms around mid day and should provide little influence for the day overall.  The Wall cycle is down.  So overall tomorrow may have a slight down bias, but by the end of the day may be little changed.  I would expect a fairly tight range during the day.

Here is the SPX swing cycles (my interpretation):

GL traders.  Do your own analysis

Sunday, November 20, 2011

11-21-2011 outlook

I thought we would see more volatility Friday (a wider range with it being OPEX).  Still we traded within the range expected.  I speculated we would close red (hey, I was partially right - a mixed close). 

Monday we should see the 34TD cycle bottom.  All the other shorter cycles except the 11.2TD cycle are down.  Given the Wall cycle should be down and probable dominance of the 22TD cycle Monday should have a down bias.  To reach the expected amplitude of the 34TD cycle (top to bottom we could trade as low as the mid 1190s) we need 20-25 points of downside.    Once the 34TD cycle bottoms we may see a bounce later in the trading day.

Here are the SPX swing cycles (my interpretation): 

GL traders.  Do your own analysis and be careful.  

Saturday, November 19, 2011

11-18-2011 Wall cycle (20 weeks) headed down

The Wall cycle should bottom by or before  Christmas it appears:

This and the 22TD cycle being down over the next 2 weeks should provide market weakness into early December.  Here is my version of the Wall cycles:

As the Wall cycle is now down this in part explains the apparent dominance of the 22TD cycle.

Thursday, November 17, 2011

11-18-2011 outlook

Last evening I suggested we would see some downside today, even substantial downside: "So I conclude we could have a flat day, but expect some (maybe more than some) downside. ".  Today did a lot to bring the S&P level more in line with what would be expected if we met the daily average decline for the 34TD cycle (6 x 15 down days = -90 points or S&P of ~ 1602). 

We still have some downside potential if the 34TD cycle is to meet its projected amplitude on the downside - say under 1200.  The 22TD cycle is also down and seems to be gaining dominance.  The 2.8TD cycle has turned up - so the sum of the DPOs is up.  Tomorrow is also OPEX so we could see the market on both sides of unchanged and I would not be surprised to see 1200 low and 1230 high tomorrow (close red?). Might be a good day for a day trade or two?

Here is the SPX swing cycles (my interpretation):

GL traders.  Do your own analysis and be careful.

Wednesday, November 16, 2011

11-17-2011 outlook

I mentioned to you again last evening I felt that the 22TD cycle was again becoming dominant and may have  prevented the down side one would expect with most or all the other swing cycles down.  Well, by around 2PM today the 22TD cycle should have topped and turned down.  I can't be 100% sure, but it appears the 22TD cycle demonstrated just how dominant it may be in the last hour of trading.

Looking at the cycles tomorrow and adding up the DPOs one would expect a flat day.  There are two items that say otherwise.  First the 34TD cycle has a lot of unspent downside potential (40-50 points) that may show up as it pushes hard toward a bottom by Monday.  Second, if the 22TD cycle is dominant as it appears it might be then our DPO estimates for it will be low.  So I conclude we could have a flat day, but expect some (maybe more than some) downside. 

Here is the SPX swing cycles (my interpretation):

GL traders, do your own analysis.

Tuesday, November 15, 2011

11-16-2011 outlook

We have 2 cycles topping and 2 cycles bottoming on Wednesday.  So the only cycle with a clear direction is the 34TD cycle.  Given this we could end down 10 points or up 10 points depending on the exact timing of cycles topping and bottoming.

I told you over the weekend that the 22TD cycle may again be assuming dominance.  Given that the last 2 days saw very little downside I think plays into the theme of 22TD cycle dominance.  Here is the SPX swing cycles (my interpretation):

GL traders, do your own analysis.

Monday, November 14, 2011

11-15-2011 outlook

Today was down as expected, but the potential large move did not happen (wasn't convinced it would).  Tomorrow gives us one more chance at a substantial down move as all the cycles except the 22TD cycle continue down.   Not promising a large move down, just saying there is potential for that.

Here is the Swing cycles (my interpretation):

GL traders, do your own analysis

11-14-2011 outlook

Friday advanced, we expected at least a modest pull back.  With the alignment of the cycles now today should be down (and could be down substantially). 

I updated  the cycle amplitudes (DPO) so as to incorporate last week's data.  Here is the charts:

All the swing cycles except the 22TD cycle are down.  The amplitude of these cycles less the 22TD cycle is about 40 points.  A move of this magnitude would put SPX in line with the average for the 34TD cycle over the past 11 days (1225 or so).  Here is the SPX swing cycles (my interpretation):

Gl traders.  Do your own analysis.

Saturday, November 12, 2011

11-12 Inventory topping?

Wholesale inventory showed a slight lag recently.  As sales stagnate inventory will be reduced.

Why should you care?  The inventory cycle is an economic cycle.  But the Kitchin stock cycle is based on the inventory cycle.  This cycle normally precedes the inventory by 3 or so months  (for example the stock market cycle bottomed in March 2009 and the inventory cycle did not bottom until around May in 2009). 

The Kitchin averages about 42 months and is encompasses 9 Wall cycles (20 weeks/100TDs).  The Kitchin cycle has topped some months ago (so if it precedes the inventory cycle we would expect a top in the inventory cycle).  At 42 months the Kitchin should bottom around Aug/Sep of 2012.

Here is the Kitchin cycle: 

Cycle dominance 11-12

I have mentioned cycle dominance on several occasions over the past few months as we say a well established patter give way to a different pattern.  It appears we are about to experience another switch in the dominant cycle.

It should be apparent to all that recently the shorter cycles have been dominant.  IMO the dominant in the recent past has been the 11TD cycle.  The dominance appears to be switching to the 22TD cycle now.  Here is how it appears graphically:

Chart from and slightly modified.

Thursday, November 10, 2011

11-11-2011 outlook

Today's projection was close:  "Based on this tomorrow is projected to be up almost 12 points ".  It is good to get it right some of the time.

As we discussed yesterday taking a longer view using the 34TD cycle is now down 10 days.  That should equate to 62.5 points off the top which would put the S&P around 1230.  Given the influence of other cycles it is expected that average results will close above (today) and below (yesterday) but the sum of the daily averages of the 34TD cycle (10 x 6.25) will be achieved over time.  By close tomorrow that cumulative average will be -68.5 points which is around 1223.5.  So we have the potential of a fairly large down move over the next couple of days if the 34TD average is to be honored.  It could be tomorrow, but my guess would be on Monday.  So keep this in mind in regards to my daily projections.

The 34TD cycle is down (-6.25 pts), the 11.2TD cycle is down (-14 pts) for a total of -20.25 points.  The  22TD cycle is up (+9 pts).  The 5.6TD cycle tops tomorrow and I estimate will contribute  +4 points.  The 2.8TD cycle also tops and should contribute about +2 points.  This is a total of +15 points.  The difference is a projection of down 5.25 points....  Of course, keep in mind we have the potential of a larger down day  (over 15 points) when the 34TD average is honored..  So overall we could see -20 points or more tomorrow (1219 area) if the 34TD average is achieved.

Here is the SPX swing cycles (my interpretation): 

GL traders.  Do your own analysis

Wednesday, November 9, 2011

11-10-2011 outlook

Today was unexpected based on a single day's projections.  If we had taken a longer term view - should it have been though?  Look at the 34TD cycle.  It should incorporate all the movement of cycles less than 34TDs.  Counting today it has been down 9 days.  At an average of 6.25 points a day that is about 56 points of downside potential.  From the prior peak that would put the market around 1236.  Based on this a big down day was baked in (just a matter of when).  Of course, we overshot even that.  With that overshoot  we may be set up for an up day.  Question is when?  You miss a single data point like this and your projections are apt to miss at some point.  At this time we have about 7 points of upside baked in (1236 - 1229) at the open (about 1 point at day's end :  1236 - 6.25 - 1229).  So keep this in mind as we proceed forward.

Tomorrow the  34TD cycle is down, the 11.2TD cycle is down.  The 22TD cycle is up and the 5.6TD cycle is up.  The 2.8TD cycle should bottom before noon and add a point or so to the upside.  Based on this tomorrow is projected to be up almost 12 points (which would put us above the 34TD average for 10 days down of -62.5 point to around 1230).

Here is the SPX swing cycles (my interpretation):

GL traders.  Do your own analysis.

Tuesday, November 8, 2011

11-09-2011 outlook

Today was up more than projected.  There are two things critical in making projections:
  • Placement of the cycles
  • Amplitude assigned to each of the cycles in the mix.
It appears the 5.6TD cycle bottomed 3 hours or so earlier than I had projected on my charts. The 11.2TD cycle topped around the same time.  Since the 5.6D cycle has a larger daily amplitude and a shorter turning radius it seems to have had more of an impact.  I wish I had a more precise method of determining swing cycle placement.  At this time I don't, but will continue to look for a better method.  If you have suggestions on this topic I would like to hear them.

So we have the 34TD cycle, 11.2TD cycle, and 2.8TD cycle down.  Their combined amplitude is about 31.25 points (down).  The 22TD cycle and 5.6TD cycle are up for a combined amplitude of about 30 points.  So the total amplitude is slightly negative for tomorrow (-1.25 pts).  I expect about 1-3 days of topping action here.  Keep 'em guessing.

Here is the SPX swing cycles  (my interpretation):

GL traders.  Do your own analysis.


11-08-2011 outlook

I had projected we would see the S&P down about 4.25 points on Monday in my weekend post.  Instead we were up a single digit points.  So this got me to thinking about my approach using DPOs.  I believe this approach has validity.  In thinking about this I zeroed in on the 5.6TD cycle.  I said it would have an average move of 21 points (and would account for the 2.8TD cycle).  I believe that is true but incomplete.

If we have an average move of 21 points for the 5.6TD cycle we could have it move 31 points one day (5.6 and 2.8 moving up/down together) or we could have a move of 11 points if one is up and the other down and average 21 points.  On days when we have tops and/or bottoms being set we may hit the average of 21, but in most cases we will be above or below the average.   So saying the 5.6TD cycle accounts for the 2.8TD cycle DPO while true is not the whole story.  Looking at yesterday I believe the 2.8TD cycle moves about 11 points a day.  So -4.25 + 11 is +6.75 or nearly what the move was yesterday.

Today the 2.8TD cycle is up while the 5.6TD cycle is down most of the day suggesting these 2 cycles will contribute about -10 points of movement to the S&P and that should give us a close around +6 points for the day.

Here  is the SPX swing cycles:

GL traders.  Do your own analysis.