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.

Sunday, November 6, 2011

11-07-2011 outlook

We opined that Friday would be down (and it was).  I expected somewhat a larger move down, but it recovered somewhat the last hour.  Monday the 5.6TD cycle continues down, but will this be enough to push the market down?

We have the 34TD cycle and 5.6TD cycles down.  We have the 22TD cycle, 11.2TD cycle and 2.8TD cycle up.  I suspect that this presents us with a situation where we could end down 10 points or up 10 points (or somewhere in between).  More on this later.

Here is the SPX swing cycles (my interpretation):

To check out my suspicion of a +10 points or -10 points on the SPX I turned to the DPO (Detrended Price Oscillator) to try an put a number on the potential move.  The DPO is based on the amount above/below an simple moving average.  It is shifted left half the moving average +1 to reflect the midpoint of the points being averaged.  The theory is this eliminates the impact of all cycles longer than the moving averages giving us a tool to evaluate shorter cycles. 

I began with the 5.6 (6)  day MA.  The DPO shows a potential movement of about 60 points from this cycle top to bottom (or bottom to top).  That is a move of about 60 points over 2.8 days or about 21 points a day average over 2.8 days.  Remember this ignores the impact of the 11.2TD cycle, 22TD cycle and 34TD cycle.  So it does not represent the expected daily average movement over the next 2 days.  It should account for the movement of all shorter cycles.  If this was the only cycle we analyzed with DPO we would expect a large down movement Monday.  Here is the 5.6TD DPO:

So down 21 points was our starting point.  Next we look at the 34TD cycle (also down) and determined it had a potential impact of 6.25 points per day giving us a total of about minus 27 points per day.  Next we looked at the 22 TD cycle (this one is up) and it has an impact of about 9 pts per day (+9) which reduces the potential downside impact to about 18 points.  Finally we look at the 11.2TD cycle (up) and it has a potential daily of about +14 points.  This gives us a downside of around  minus 4 points on the S&P.  This is within the  (+/-) 10 points we suggested earlier.

Here are the 34TD, 22TD, 11.2TD cycle DPOs:

GL traders.  Do your own analysis.

Note: We could have just looked at the 34TD cycle as it eliminates cycle impact longer than 34 days, but would include the impact of any cycles shorter than 34TDs.  It showed us an average move of about 6.25 points (and since the cycle is down) that would have been -6.25 points.  I wanted to show you though how the peaks and bottoms of the DPO matches the tops and bottoms of the different cycles.  So you can use DPO to help you in isolating cycles by focusing on the peaks and valleys in the DPO.  You may want to vary the DPO parameter to get a best fit.  Just remember the DPO parameter is half the cycle length +1.

Thursday, November 3, 2011

11-04.2011 outlook

Today was up as expected.  Stronger rise than I would have guessed.  Still I said yesterday "but will not stop an upturn if indeed the shorter cycles are up".  Tomorrow we get the job #s for October.  Usually this number can move the market.  Recently I believe it has moved the market down.  This is the news on deck before the market opens.  Of course - the so called experts have trouble predicting the # so don't expect me to try.

Two of the swing cycles should top by mid day.  Given most of the swing cycles start the day up it seems we may get some push up early, but it should be over by/before mid day.  Looking at our chart you see the potential for an H&S pattern as the 5.6TD cycle turns down for 2.8 days.  So is the 5.6TD cycle going to give us a nasty little sell down starting tomorrow and running through Tuesday?  Looks possible.

Here is the SPX swing cycles (my interpretation):
GL traders.  Do your own analysis and be careful.    

Wednesday, November 2, 2011

11-03-2011 outlook

Market opened up and held green all day.  I had expected  a dip red at least some time during the day.  Still today looked like part of a bottoming process (along with yesterday).  These processes take 2-3 days usually to play out.  So we probably have seen the bottom near term.  If this process extends into a third day then it should test yesterday's low.

It looks like tomorrow should be up.  Greece seems determined to go into bankruptcy and the market didn't care.  The Super Committee seemed dead locked and the market didn't care.  Benny downgraded the Fed's outlook and the market didn't care.  Seems like the actions of a market at a bottom - not one headed down.

Most of the swing cycles should be turning up.  The 34TD cycle remains down. The 20 week (Wall) cycle should also have turned down in October.    This should limit upside potential but will not stop an upturn if indeed the shorter cycles are up,

Here is the SPX swing cycles:

GL traders.  Do your own analysis - be careful.

Tuesday, November 1, 2011

11-02-2011 outlook

Well today was a sharp down day as I thought it would be.  We are now about 80 points below last week's high on the S&P.  Question is do we have more downside and if so - how much.  So I took a look at the DPO for the 22TD cycle (that is the one set to bottom tomorrow if I have the cycles positioned correctly on my charts)..  The DPO  detrends the cycles giving us the expected amplitude.  So here is what the DPO projects:

As you can see the DPO gives us a downside target of around 1194.  I have heard 1208 and 1183 mentioned and would argue with neither as I have not included the potential impact of  longer or shorter cycles.  Most of the other swing cycles (all except the 2.8TD cycle) should be down and bottoming by the end of the day tomorrow.  So I would think 1183 more likely than 1208.  But you should do your own analysis and decide - I am providing you a road map not a GPS system.
Here are the swing cycles for the S&P:

In short I expect the day to at least dip in the morning.  Pinpointing the exact time of a bottom is difficult and it might be mid day instead of end of day.  Who knows - maybe we get something at 2:15Pm from the FOMC meeting that turns the market (has happened before). So be prepared for a bottom tomorrow.  If I am off by 1 day we may have seen a bottom today.... 
GL traders.  Be careful and be ready to change horses.

10-30-2011 watching the VIX

Update 11-01-2011

Friday was a mixed day - only the DOW was down I believe.  So we now have 3 down days in a row on the DOW.  I suppose this could be taken as a confirmation of a VIX trend change signal.  I prefer 3 days with the major indexes (DOW, S&P, NAZ) all down as a confirmation - but would not argue if you said it was a confirmation.

Original post:

If you look at a Bell curve  2 standard deviations from the center covers 95% of the population.  Now if we apply that to the VIX  a move up in the VIX of 95% from a bottom or down 47.5%  from a top should indicate an extreme move.  The VIX has now moved down over 47.5% from its high around 48 - so we suspect a high is near (or may have already been reached).

To be on the safe side though we would like confirmation to call a trend change.  Back testing shows that if we get 3 red days in a row that this provides confirmation of a trend change to down.  So we are waiting that to confirm a VIX trend change signal.

Confused?  Reference prior posts on this topic.