Saturday, June 4, 2011

Comments and outlook for month of June 2011

Back on April 11/12 I told you that the VIX had given a trend change signal.  The market made one more high the next week and has been down the last 5 weeks.  I consider that an excellent signal because it was early enough that you had time to position yourself for the change before the trend turned down.

During May I have been telling you that by late May (or early June) we should start to see the down leg of the 1 year cycle to start to really impact the market.  That is because for longer cycles  most of the downside of a down leg will occur in the last 15-20% of that leg.  For a 1 year cycle the down leg should ideally be 26 weeks.  And 15% of 26 weeks  is 3.9 week and 20% is 5.2 weeks.  Lets say 4-4.5 weeks which would be the month of June (as the 1 year cycle should bottom the first week of July). 

To add to that the 20 week (Wall cycle) should have just topped and turned down.    So don't be upset with me if I am somewhat bearish the next few weeks.  Look at what happened this week.  I think we are starting to see the impact of the 1 year cycle down leg, and if that is true then the next 4 weeks or so should be down.  Actually, the first 2 weeks of July should also be weak as the Wall cycle bottoms in the middle to late July. 

Will we get rally attempts?  Probably, but any attempts to buy the dips should be done very carefully and for short term day trades.  This is the type of environment where buying the dips can get your face ripped off by the bear.

So June should be a down month.  The question is how much down.  Using DPO (Detrending Price Oscillator) to gauge the amplitude of the 1 year and 20 week cycle I estimate we should be around 1150 by the end of June (and around 1100 by mid July).  How does that match our FIBS? We have broken below the 1310.20 FIB and missed hitting the 1294 FIB by 2-3 points Friday.  Longer term  we have a FIB at 1146.06 and 1095.30 so I will assume at this time those are likely targets for end of June and mid July.

Here is the FIB table:
And here is a cycle chart for the 1 year and 20 week cycles:

GL traders.  Do your own analysis.  If you are a bull - in June be afraid, be very afraid.

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