Feb 24, 2014 weekly outlook

Here is the latest visual --

Looks like the market will continue to churn the first part of the week.  SP500 may set new highs but I doubt we see any substantial upside breakout.  Much the same type of action we saw this past week.  Not exactly as I expected - up/down/up/down with no clear direction established.  It appears though we are establishing a top, but then again it could be a base I suppose.... The longer cycles are down, but shorter cycles are up which explains my expectation of churning action.

GL traders

Week of Feb17, 2014 outlook

Completely off target last week....

Looks like short cycle top during week, but 24 day cycle (1/4 Wall)  remains up.  Wall cycle and 1/2 wall cycle down. So up for 2 days then down..

Even though we saw a buy the dip reflex  in 2014 it seems we have seen or should see a top soon.  We had a sideways move with fairly even spaced tops followed by an upside breakout.  This happened in 1929, 1937, 1987,  2000 and 2007.  Here is a visual for your consideration showing 2013 sideways and upside breakout:

GL traders

Feb 10, 2014 weekly outlook

Well, I was right about a couple of up days.  I was doing OK on   the down bias until Friday.  My target of 1745 wasn't off by much  and market did not spend a lot of time below that level.  Not a perfect call of the market, but not a bad call either.

Appears a short cycle (12 days) provided the bounce off the bottom.  That cycle should have spent its upside energy by Wednesday.  Then we will have the Kitchin, 1/3 Kitchin cycle, Wall cycle, and 1/4 wall cycle will be down. by mid week the 1/8 Wall (12 day) cycle will be down.

So we may get some upside (baiting the bulls?) and then some vigorous down the last couple of days of the week.  I expect the week to be down (and it could be substantial).  Eventually I think we test the 1695-1700 area based on some longer term DPOs (but not just yet)

Here is a visual:

GL traders

02/12 updated chart:

==

The shorter term Kress cycles - part 3

We have looked at 10, 12, 20, 24, 30, 40, 60, and 120 year cycles.  Even the shortest of these cycles is longer term than most of us would use for trading.  Still it is worth knowing the longer term context within which you are trading.

The last 4 cycles Kress incorporated within his studies of cycles are 2, 4, 6, and 8 year cycles.  2 and 8 are Fib numbers; 2x2 (or 4) and 2x3 (or 6) are multiples of fib numbers.  So the previously discussed Fib relationship holds. Some of you may use the shortest of these for trading - still though even 2 years is too long for Swing Trading (why I use the Kitchin and Wall cycles for swing trade discussion).  Otherwise I am totally agnostic as to which group of cycles you choose to follow.  I believe the discipline imposed by following a system (group) of cycles can improve your trading results and focuses the mind.  No system is perfect, but some are worthwhile if you make better trades and earn more for your efforts.

Here are the shorter cycles within the group of Kress cycles:

Clif Droke has written a book (just released) that discusses weekly cycles Kress used in his market analysis.  This is supposedly new information not formerly released by Kress.  But we can guess that the # of weeks are Fib multiples.  I am guessing 10 weeks (Half a Wall cycle), 20 weeks (Wall cycle),  60 weeks (1/3 Kitchin cycle), 40 months (Kitchin cycle), 120 months (10 yrs). If anyone has the new Droke book -- let me know.

GL traders, hope this discussion of Kress's cycles were worthwhile...

Update 2/5/2014:

http://www.safehaven.com/article/32664/re-visit-two-charts-you-can-trust

http://www.safehaven.com/article/32669/stocks-peak-one-year-after-bonds-history-set-to-repeat

Feb 3, 2014 weekly outlook

If you follow my posts you know in January I had been somewhat negative looking for some cycle tops during January.  My outlook was for a 4% or so correction in January (which we got).

It appears that the longer cycles I generally follow (Kitchin, 1/3 Kitchin, and Wall cycles) are down.  The shorter cycles (1/2 Wall and 1/4 Wall) are up.  With these cycles offsetting in the coming week we probably will see some up days mixed with some down days with a slight down bias for the week.  It now appears the longer cycles have assumed dominance.

Here is a visual:

Weekly view:

GL traders

update 2/5/2014 (Hurst cycle charts):

===========

The less long term - part 2

We discussed and gave you a visual of the long term Kress cycles (120yr, 60yr, 40yr and 30yr) and you saw that in theory they all should bottom together in the second half of 2014.  This alone should make one wary of the market as I question just how precise these predictions are when it comes to an exact date.  Heck, if your are within 2-3 months on these long cycles I think you would call it a direct hit!!!

But, that is just part of the story as there are 12 cycles in the Kress cycle series.  The cycles shorter than the long cycles are still longer than most of us trade (definitely too long for swing trading).  They are the 24yr, 20yr, 12yr and 10 year cycles.  There are 5X24 Year cycles, 6x20 year cycles, 10x12 year cycles and 12x10 year cycles in the 120 year cycle.  And guess what - they are all scheduled to bottom in the second half of 2014.

Here is a visual:

Also of interest is the Fib (1,2,3,5,8,13,21.....) relationship of the Kress cycles:

3x8 = 24
2x2x5 = 20
2x2x3 = 12
2x5 = 10

If you pursue this you will see the Fib relationship can be extended to the longer cycles.

The really longgggg term - part 1

Depending on whom you follow determines the combination of cycles with which you are familiar.  Maybe it is the Hurst cycles (developed by JM Hurst).  Or, maybe you are a fan of Gann (cycles are generally based on 360 degrees in a circle).  Or, possibly you follow Martin Armstrong (he identified the Pi cycle).  David Knox Barker follows the Wall and  Kitchin cycles (I like their application to swing trading).

Then there are the cycle groups developed and followed by Bud Kress (I believe he passed away recently, but Clif Droke is a disciple you can follow).  Today our long view will be developed using the Kress Cycles.

The numeric time cycles which comprise the 120-year series include the 60-year, the 40-year, the 24-year, the 20-year and the 12-year. The 120-year is the primary composite cycle according to Kress. It includes three 40-year primary bias cycles and five 24-year primary direction cycles. The 60-year secondary composite cycle (which is analogous to the "K Wave") includes three 20-year secondary bias and five 12-year secondary direction cycles. As Kress points out in his latest report, "Excluding both composite cycles, this leaves four cycles which determine the market directional behavior for the three designations of time – years, quarters and weeks." In total, there are twelve cycles comprising the Kress cycle methodology.

The 120 year cycle  prior bottoms were 1774 (Revolutionary War period), 1894 (beginning of the industrial economy) and 2014 (expected bottom - beginning of a new social order - socialism).  So the 120 year Grand Super Cycle is often referred to as the revolutionary cycle (political revolution - 1774, economic revolutionary - 1894, social revolutionary - 2014). The secondary composite cycle is the 60 year K wave cycle (last bottom 1954 (which was the top of the 120 year revolutionary cycle).

Here is a visual of the longer cycles of the Kress Cycles:

 

All these cycles should bottom in late 2014 (now that should be a bottom to write home about).

Next (part 2) comes the less long cycles (24, 20, 12, and 10 years).  The 24 year cycle peaked latter part of 2002, the 20 year cycle in 2004, the 12 year cycle in 2008, the 10 year cycle in late 2009.

Oulook for week of Jan 27 and Feb 2014

In my outlook for 2014 I showed a series of charts (and gave reasons) to be wary of the market.  My cycle chart (below) indicated a top mid  January.

And I posted a comparison of 1929 and today's market.  If that comparison works out then we should have seen a market high followed by a steep sell down.  We got  a new high and possibly the start of a sizable pullback.  Time will tell - here is that comparison:

And in my outlook a couple of weeks ago I indicated a top coming (seems I may have been a week or so early as I expected a couple of hard down days last week and had indicated  a target of 1790.  Now I need to revise the possible downside based of the 100 day Wall cycle (as the 1790 projection was using a shorter DPO of the half Wall cycle). Should  lower the downside target for next 10 weeks.

Last week  I gave you several reasons to be wary of the market even though I expected more a sideways than a down market (got that wrong). Some questioned my conclusions (but I try to avoid technical fights) so my response when asked about the longer cycles: 

"But, keep in mind it may take several months (say 20% of the total cycle or 6-8 months) to go top to bottom. In other words except for 1987 it has taken more than a very few days to achieve a correction. Note: the markets normally take longer  (usually 70-80% time wise) to go up and less time (20-30%) to correct."

This week seems there were a lot of future layoffs announced (IBM, TI, Sam's Club,  and several others).  When you start seeing lots of such announcements makes you say hmmmmm....  Earnings continue to be less than stellar as a whole.

Looks like we may be repeating the pattern we saw back in Aug/Sept the last time the  we saw a Wall cycle top and half Wall cycle bottom together.  The difference maker this time is the 1/3 Kitchin cycle is also topping and turning down so the downside may be greater??  Time will tell.

Here is a visual.  I suspect with the 1/3 Kitchin cycle down and Wall cycle down thru February and into March.   Usually every 3rd Wall cycle sees the larger decline when it is bottoming in sync with the 1/3 Kitchin cycle (August Wall bottom?).  The 1740-1750 target does not account for the impact of the 1/3 Kitchin cycle.  I will try and account for that at a later time.

GL traders

Update:  Looking at the lower trend line we should expect support around 1740-1750 so that is the next potential downside:

Of course Yellen's first act may be to "untaper" and increase QE to try and prevent a substantial market correction.  If that happens it could postpone a correction for a short period of time.

Jan 20, 2014 weekly outlook

Another sideways week.  After Monday it appeared we may be in for a down week of a few percent, but nearly all that was lost Monday was regained Tuesday and Wednesday.  In some cases indexes made new highs.  Market moved down moderately Thursday and up Friday.  So for the year so far the market is essentially flat. 

It appears all the new retirement money (401k, IRA, pension funding, etc.) has failed to move the market higher.  A lot of fuel burned without a launch of the rocket.

The talking heads on TV keep telling us about the positive #s.  Still it looks like retail for the 4th qtr 2013 was not healthy (Best Buy and others).  Consumers make up about 70% of the US economy, so it is hard to understand how the economy is doing well.  Employment number were pathetic (74,000).  So far earnings reports have not been that great (about 50% of companies just met or missed estimates).  Mortgage applications have been declining since May.  Building starts are declining and permits going forward are less still.  Auto sales are softening.

Despite 'blaming' the drop in the cost of dry bulk shipping on Colombian coal restrictions, it seems increasingly clear that the 40% collapse in the Baltic Dry Index since the start of the year is more than just that. While this is the worst start to a year in over 30 years, the scale of this meltdown is only matched by the total devastation that occurred in Q3 2008. Of course, the mainstream media will continue to ignore this dour index until it decides to rise once again, but for now, 9 days in a row of plunging prices is yet another canary in the global trade coalmine and suggests what inventory stacking that occurred in Q3/4 2013 is anything but sustained.

So fundamentally I see little that is positive as bank exposures are back at levels last seen 2007/2008. 

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq313.pdf

Notional derivatives increased $6.2 trillion, or 3%, to $240.0 trillion. Notionals have now increased for three consecutive quarters, after having declined in five of the prior six quarters.

Money Flow (MFI - see following chart) is down for several months now as stocks advanced. This means stocks advanced on less and less money.  Eventually this stops and Money Flow and stocks move together. 

The Wall cycle has turned down, the qtr Wall cycle has turned up for 2+ weeks.  The half Wall cycle has turned up for about 5 weeks (thru Feb).  So the market continues sideways with possibly a slight upside bias next week.

Here is a visual:

GL traders

 

Week of Jan 13, 2014 outlook

Minor downside during the past week, but really more sideways than down.  Seems market is down most of the day and recovers last hour to close slightly down or mixed for the day.  A lot of money entering the market that last hour to support the market.  Looking at some of the statistics retail investors have less money in cash and bonds and more money in equities  - levels last seen in 2007.

I believe this support without market advance will result in some downside pressure.  If that is correct we may see a couple of note worthy down days next week. 

Here is a visual:

GL traders