Week of Sep 30, 2013 outlook

The lunar (23TD) cycle appears to be the dominant shorter cycle.  It is now about hallway through its down leg  which suggests that we should have a second week down. The move should be about 1% (15 or so points) for the week.  Hope this visual helps:

GL traders

Hourly chart SnP - Head and Shoulders (symmetrical) pattern suggests down trend in effect:

tops, bottoms, uptrends, downtrends part 2

In part 1 I discussed tops and bottoms and patterns often associated with tops and bottoms.  This was not intended to identify specific buy or sell points, but to provide alerts that a change was probably taking place.  Given this knowledge you would use your other tools to identify specific buy/sell points.

But, how do I know if a trend is apt to continue.  If the tops of a trend is right translated (the up leg is longer - time and amplitude)   then the market is in an uptrend and that trend will probably continue as long as the shorter cycles are right translated.  Once, these shorter cycles become symmetrical then most like a trend change is in the  making. People talk of flags wedges, diagonals etc. which are a result of the cycles being right translated.


Take a look (Note: I am using charts of the recent past to illustrate my points and not searching past history to find a period that proves my discussion):

Now, we could probably identify flags, wedges, diagonals and other formations on the chart, but why would we want to do that when we have a much simpler way to evaluate whether a trend is apt to continue up (we continue to hold our long position) or we tighten stops as we suspect a top is near.  Our other tools will aid us in identifying a more exact time/price to act.

Finally, how do we know  if we are in a downtrend and if that trend will continue?

Again many technicians focus on patterns as with up trends.  But, we have a simpler approach because we know cycles can be symmetrical (top or bottoms) or right translated (up trends) and that leaves one other option - Left translated.  When the tops are left translated the down trend is apt to continue.  When we get a symmetrical bottom (W, V, inverted head and shoulders, etc.) most likely we are witnessing a bottom and a trend change to up.

Let's look  at a recent example see:

 

Note the "W" shaped bottom, not a perfect "W" but close...

So by mere observation you can often identify future market action.  You don't have to be a super technician to do so.  Hope you find this discussion helpful.

Tops, bottoms, uptrends, downtrends part 1

From time to time I try to include discussion to help you with your own analysis.  This is  one of those occasions.

You  hear/read discussions about different chart patterns and usually whether it is a topping or bottoming pattern. They may also discuss trend continuation patterns.  Can we simplify the whole subject without all the discussion that surrounds the different patterns?  I hope so.

Tops and bottoms generally occur when we get a symmetrical cycle top (probably a trend change to down is happening) or symmetrical cycle bottom (probably a trend change to up is happening).  Some symmetrical top patterns are a Head and shoulders,  a M, or a inverted V.  All of these are symmetrical cycle patterns indicating a probable top and trend change to down. That is pretty simple isn't it?

Some symmetrical bottom patterns are an Inverted head and shoulders,  a W,  or a V.  These are usually bottom patterns indicating a trend change from down to up. Again, that is  pretty simple isn't it?  The key factor in all these patterns is they are symmetrical!!! In summary we are looking for symmetrical cycle tops and bottoms to alert us to possible trend changes..

Are we topping?  Let's look at a chart and make a judgment from that:



The cycles are indeed becoming more symmetrical as the up legs and down legs become more equal.  So this alerts us to be extra careful and tighten up our stop losses and maybe even buy some insurance (puts or inverse ETFs).

OK, this doesn't prove the case because we do not know how the future plays out.  Let's look at a case that we do know what happened:

You can check and see what happened in 2010.  From this chart you also see once a  symmetrical bottom was set (a V shaped bottom) the market was onward and upward.

We will discuss uptrends/downtrends (flags, wedges, etc.) in part 2.

Sep 23, 2013 outlook

The market continues to rot at its core. The longer it is before we get a substantial correction the larger the rotten core becomes.  The larger the rotten core the more potent the stink when the market does correct.

1) The velocity of money continues to slow.

2) The real unemployment rate continues to be very high (even though the labor force shrinks as people drop out).

3) Debt levels continue to rise.

Note:  If personal and corporate debt were included it would be about 4X GDP.

4) There is no real underlying economic recovery (anemic growth).

5) The actions by the FED of loose money continues (zero interest and QE), which is representative of the poor and continuing deterioration of the underlying market and economic conditions.

6) The sheep continue to be sucked into the trap while trying to convince themselves it is different this time.

7) Technical analysis does not work and why the man behind the curtain has complete control.

• “Pay no attention to the man behind the curtain,” so said the great and powerful Wizard of Oz to Dorothy, the Tin Man, Scarecrow, and the Lion. For if they had looked behind the curtain they would have seen the wizard using machines, levers and stuff to sound strong and powerful. The wizard was using his smoke and mirrors to convince the four to listen to him, and to not believe what they saw.

Fact is, hearing and seeing people thinking in this manner once again is, in reality, only part of the cycle.  Not yet, but the day of a trend change is near and the downside is substantial as the FED monetary bubble  bursts.

This past week I had projected a top for Tuesday, but with no "taper" the top was a day later than projected.  Also, the FED inaction provided enough "mo" to set new highs, but by Friday close it appeared the short term trend may have indeed turned.  So next week expect some pullback.

GL

Longer term chart (to clarify comments regarding longer term):

GL

sep 16, 2013 outlook

It’s worth considering the current Shiller P/E near 24 (S&P 500 divided by the 10-year average of inflation-adjusted earnings) in the context of rising yields on competing securities. Both the Dow Jones Utility Average and the Dow Jones Corporate Bond Average are down more than 5% from their recent 26-week highs. Note recent 10 year treasury yields almost double lows and Verizon 10 year bonds over 5 %.

The last time we saw this combination of weakness in interest-sensitive sectors with the Shiller P/E even above 18 was in September 2008, just before the market collapsed that year. We observed a similar deterioration following overvalued, overbought, over bullish syndromes in January 2000 (though be aware that it took several more months of top formation for the market to decline in earnest) and June-September 1987. This illustrates our discomfort with speculative risk-taking here. We could be witnessing a 40-50% decline starting later in the year (I believe it could be under way by mid October).

In the mean time there is next week. the 23TD cycle should have topped by Tuesday Sep 17 and head down (some refer to this as the lunar cycle as it approximate a lunar cycle in calendar days - it also approximates 1/4 of a wall cycle).   This seems to be the more dominant of the shorter cycles, but the 11-12TD cycle bottoms as the 23-24TD cycle tops. The 1/2 Wall cycle remains up but will be losing upside momentum soon.

Summary for the week - up Monday into Tuesday and down starting Tuesday into end  of the week,  For the week the market declines around 1.5%??

GL

sep 09, 2013 weekly outlook

The market continues to edge higher as a shorter cycle (the 23TD cycle) tops next week.  I expect a high of 1670 or higher by end of the week.

GL traders

sep 05, 2013 outlook

As I suggested last week it looked like for the short term we were in for a bottom.  Been a bit volatile, but the market is up so far this week (and should continue - best guess is about a week).  I expect we will try to test old highs, but the SnP  will fall short (1700ish?).   Lots of tests ahead - Syria, Fed taper (or not), debt limit, budget issues, Asian currency failures (India rupee), etc.  So I doubt any move up will be long term and expect to see market failure no later than mid Oct.  So Sep up first part of the month with weakness developing by mid month....

Here is a visual:

Watch for topping to reenter RWM...