November 2012 update III

The market was up about 60 points from its low.  It recovered almost 50% of its correction in a very short period.  We can be confident this pace "up" can not be maintained, else the market would double in a very short period....

I took a look at the amplitude of the 22TD cycle (DPO(11) daily chart) and found out the amplitude of this short trading cycle was around 60 points.  So we have fulfilled upside expectations (and then some) for this short swing cycle.  Therfore, I expect the upside potential is limited the last week of November and think the possibilty of a down week are good.

Here is a visual of the short term outlook:

Might see some more up early week, fade by end of week??  GL traders - wrote covered calls on my RWM, hopefully will buy them back for a nice profit this week....

Gann - years ending in 3 (2013)

Below is an extract from Gann's teaching:

Each decade or 10-year cycle, which is 1/10th of 100 years, marks an important campaign. The digits from 1-9 are important. All you have learn is to count the digit on your fingers in order to ascertain what kind of a year the market is in.

No.1 in a new decade is a year in which a bear market ends and a bull market begins. Look up 1901, 1911, 1921, 1931...

No.2 or the second year is a year of a mirror bull market, or a year in which a rally in a bear market will start at some time. See 1902, 1912, 1922... 

No.3 starts a bear year, but the rally from the second year may run to March or April before culmination, or a decline from the second year may run down and make bottom in February or March, like 1903, 1913, 1923...

etc, etc...

November 2012 update II

The market has achieved the projected downside (plus a bit) for the 20 week Wall cycle (see DPO(51) on chart - 20 weeks is 100 days and half that plus 1 is 51).  So the market may be slightly oversold here (say 15-20 S&P points?) and we may get a bounce into Thanksgiving, but I am expecting lower lows into the first week of December.

Here is the shorter swing cycles visual:

The Wall cycle and 35TD cycle should provide some downside pressure into the first week of December, partially offset by the 22TD (lunar) cycle being up.  Also, the 3rd 1/3 Kitchin cycle (equal 3 Wall cycles and the third of the 3 Wall cycles is generally provides the most action) is down into the end of the month.  Since this is the 3rd 1/3Kitchin that means the Kitchin cycle is also ready to bottom.  With longer cycles we normally get the strongest move near a bottom/top (turning point).  So I believe we could see another 100 points down over the next 10-11 trading days....

Here is a visual of these longer cycles:

GL traders and happy Thanksgiving.

November 2012 update I

It appears the upside move by the shorter term swing cycles were frustrated by the longer Kitchin/Wall cycles which I anticipate will bottom by year end (or early 2013).  Seems the market is squarely focused on the fiscal cliff - which would correlate nicely with a bottom in the Wall and Kitchin cycles.

May get an attempt to rally (33TD cycle topping) first 2 days this upcoming week, but do not expect a lot of upside.  Buy back inverses on any strength.  After mid week the shorter swing cycles turn down along with the longer Kitchin/Wall cycles.  In other words the push down could get even nastier by mid-week.

Here is a visual:

GL traders...

Update 11-13:

Well the attempt to go up Mon-Tue was futile.  Told you not to expect a lot of upside (We got some during the day).  Interesting FIB ratio on the hourly S&P chart (thanks to Astro - see blog list for the chart):

November 2012 outlook

Based on the swing cycles (22TD or lunar cycle - 28.4 calendar days, and the 33-35TD cycle) it appears that the market should show some upside the first couple of weeks of November (green shaded area) and down the second half of November (orange shaded).  Some speculate given an eclipse in mid November we could see a cycle inversion associated with that eclipse.  We will see...

So I would take some profits on your inverses (Russell up 4-5% from where I suggested you get into inverses) and maybe buy an equal $ amount of  the Russell Index ETF with the intent to switch back in mid November.

I estimate the S&P index will go up 4% or so over the next 2 weeks.  Here is a visual:

GL traders - have a profitable November.

update 11/07/2012:

longer cycles bottoming end of Dec???

Economic cycles III

We have covered 2 of the 3 economic cycles we identified as important within the economy.  We covered the Kitchin (inventory) cycle and  Jugular (investment) cycle.  This leaves the third cycle:

The three most important cycles are:

1. ...
2. ...
3. the 15-18 year Kuznets cycle in housing construction / prices and associated consumer spending.

The third cycle really encompasses all construction and infracstructure building.  We see faint signs that housing is trying  to bottom.  Construction/housing topped in 2006.  Half of 15 is 7.5 and 2006 + 7.5 is mid 2013 (half of 18 is 9 - 2006 + 9 is 2015).  Given this - construction/housing is 1.5 or more years to a true bottom.

The last time all three of these cycles were bottoming in close proximity was in the 1970s.  So one might suspect that 2008-2018 will be similiar to the 1970s.  Of course, there will be differences - longer cycles like the K-Wave are at different time frames than in the 1970s. 

We included the Kuznet cycle in our last post - so review that for a visual.  Here though is how this fits within the longer K-Cycle:

Note: the Kuznet cycles nest within (4 cycles) the K-cycle.

Next week should be a temporary swing trade bottom.  The 35TD and 22TD cycles should bottom by the end of the week.  I have placed limit orders to sell 1/2 of my "inverse" insurance (RWM) around $26.50. 

Here is a visual of RWM:

GL traders.....  Vote and vote often.  ;)

Economic cycles II

The three most important cycles are:

1. ... 
2. the 7-10 year Jugular business investment cycle and
3. ...

We previously discussed #1 - The inventory cycle (known as the Kitchin cycle) which is about 3 1/2 to 4 years.  Inventory run ups are followed by inventory draw downs which affects the level of commerce.  The market sell down may well be due to businesses being over inventoried and now an inventory reduction has started?

The investment cycle (Jugular) seems to be at an end as companies have invested to improve margins the past 3 1/2 or so years, but now are postponing investment as margin improvements are hard to achieve and has probably topped.  

In 2008-2009 companies trimmed staff substantially.    Today we are back near the highs achieved in GDP, but we still have high levels of unemployment.  What happened to all those jobs from back in 2008-2009?  Companies used that as an excuse to upgrade manufacturing and processes using more machines and equipment. 

Over time you can expect this trend to continue.  At the current time companies are meeting consumer demand with reduced staffs and improved productivity.  Even though machines/equipment can work 7/24 they require no vacation or holidays off, require no health insurance.  When demand is being met there is no reason to continue to invest in more productivity improvement machines and systems.    I believe we reached that point in the first half of 2012.

If you have the technical training and can program robotic controllers like Allen Bradley PLCs there are jobs for you.  If you have no specialized skills or training there are no jobs for you.  So we have a large unemployed segment of the population.  This supresses demand and the investment cycle stagnates.

Combined with a Kitchin cycle that is also looking for a bottom and you have a high risk equities market.  Here is a visual of the kitchin/Jugular cycles...

At this time it appears the 22TD, 34TD, Wall cycle (100TD) are synched to the down side (in addition to longe cycle impact).  So the bear appears to still be in control.  I expect that to continue through Oct and possibly the first week of Nov.  GL traders .. continue to hold your inverses (shorts).

downside target just under 1370 by end of month....

35TD downside satisfied, 100TD cycle amplitude should give us a pullback to around 1367:

Economic cycles I

The ten minute mini-day times 144 reappears as the day (1440 minutes), times 144 as the twenty week Wall Cycle, times 144 as the inflation/deflation Kondratieff Wave, times 144 as the 8000 year Spengler cycle in which four mighty cultures (of 2000 years each) rise and fall.

The desire/will pendulum within a complete cycle one can be pictured as follows:

Year of Dawn: from the lairs of night herds of Southern Desire emerge and begin to timidly graze.
Year of Noon: grown bold, the herds of desire graze everywhere.
Year of Sunset: the answering predators of Northern Will begin to trim the ranks.
Year of Midnight: the predators of will dine en masse in a royal contest for turf.
We derive these moods from only two sets of contraries: desire vs. will and joy (superfluous energy) vs hunger or gloomy revenge (lagging energy). These will modulate into a fourfold sequence such as that of the Years above, shown here as four phases of the (48 to 64 year) Kondratieff Wave.

Of course these are driven by economic events which account for cycles in the equity markets.  In theory equity markets anticipate economic cycle.

The three most important cycles are:

1. the 3-4 year Kitchin inventory cycle,
2. the 7-10 year Juglar business investment cycle and
3. the 15-18 year Kuznets cycle in housing construction / prices and associated consumer spending.

We have mentioned these cycles in the past, but we have referred to the Kitchin Cycle most often.  The PMI reports tell us we are seeing a decline in manufacturing.  Freightliner, Paccar, Cummins, Whirlpool and others have announced cutbacks. 

JD Hunt the largest trucker just reported a stinko quarter.  Fedex issued negative guidance.This implies that inventory levels are high and retailers/merchants are ordering less as they try to work off inventory.  Also, import levels are not increasing as the Eurozone is in a recession and China is showing slower growth.  All pointing to a slow down in inventory accumulation and probably a pull back in inventory levels.

In summary - an inventory trough is approaching.  Now, the economic cycles and equity cycles do not often occur at the same time.  If as expected the equity market moves first that could occur in the 4th qtr of 2012 or 1st qtr of 2013.  It is due within the 3-4 year (average about 3.5 years or 42 months),  but may be nearer the 4 year (48 month) time frame because of Federal Reserve intervention. 

Here is a visual  of the Kitchin and shorter nested cycles:

We will discuss other longer cycles in subsequent posts.  As you would expect if we get multiple economic cycles contributing to a move then that move becomes substantial. 

Our call for the prior week (downside bias and suggesion of buying and inverse as insurance) was on the mark.  IMO the bears continue to be in control for now, so hold your inverses...  GL traders.

October 2012 swings

In my last post I told you I thought the week would be up, and it was. Time to take a look at the month ahead. This means I will look at the longer 20 week (Wall) or 100TD cycle as well as the 33TD cycle. Also it appears the 22TD cycle is starting to have more influence.

The 100TD/Wall cycle topped toward the end of August. Often a cycle's largest impact is in the last part of a leg. The Wall Cycle is now at the point where I would expect that impact to start to exert its downward pressure.

Looking at two indicators (MFI - Money Flow Indicator) and DPO (Detrended Price) I see that the Money Flow is down even though the DJIA and S&P are near highs. These divergences between Price and Money flow to the down side often occur at tops (The divergence often is to the upside at a bottom).

The DPO shows us the part of the price due to cyclical activity. If I use a parameter of "51" then I should see the portion of price movement due to the 100TD and shorter cycles (33TD and 22 TD cycles for example). This movement appears to be around 109 points over a half span (top to bottom or bottom to top) of the 100TD (Wall or 20 week) cycle.

The 100TD cycle is down and should bottom around 11/9 (election week?) with a target of 1320. Here is a visual (chart) showing the points discussed:

The 33TD cycle should top by the middle of next week (Oct 10?). Keep in mind the Wall cycle is down. Also th upside according to the 33TD DPO (parameter "17") is near to being met.

Looks like a potential double top aound 1478 at this time. After that the 33TD cycle should be down thru late Oct or early Nov. So starting by the middle of next week we have the Wall Cycle and 33TD cycle providing some downside pressure through the latter part of October.

Will we get an 8-10% correction into the election? Appears possible.
Here is a visual high lighting the 33TD cycle:

Finally as I  mentioned the 22TD cycle seems to be emerging and becoming a factor in the cyclic activity again.   It is up (and should be for the next 6-8 trading days). 

This will somewhat inhibit the downside from the longer (Wall and 33TD) cycles.  So the next week should have a slight downward bias but the range will be limited by the upside from the 22TD cycle.  Can you say sideways for the next week?   The last 2 weeks of Oct (and first week of Nov?) has the potential of much more down side.

Here is a visual of the 22TD cycle:

GL traders.  Might be a good idea to add some inverse ETFs to protect yourself over the next few days.

Play the swing cycle

The swing cycle that appears to currently dominate is the 33-36 trading days cycle.  This means the current correction should complete in the coming week (33TD cycle - 16+ day leg would complete by Tuesday; a 36TD cycle would complete Thursday 10/04). So if you ae short or holding an inverse such as RWM you will want to watch for an exit in the coming week.... 

After the bottom we should see about 17 TD up into late Oct, then down into the presidential election.  Don't forget - there are other cycles at play that can influence the amplitude of any move by this swing cycle (Which is 1/3 of a Wall cycle).

Here is a visual:

Compare this to the predictions of the Spiral calendar:

http://spiraldates.com/

GL traders.