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.