comments and the week ahead 05-09-2011

This past week played out much as expected as it topped and turned down. I had stated I expected at least a 20 point pullback (we got more).  A lower low Thursday was a bit of a surprise, still by the end of the week the market had stated to recover as the short cycles turned up. 

Next week the 11TD cycle will be up most of the week.  This cycle has about 31 points of amplitude so it should result in an up week.  Of course the 22TD cycle has turned down, so the upside potential is less than 31 points (I would estimate 20-25 points).  I expect we should see 1360ish on the S&P during the week, but I doubt we test recent highs.  Since the shorter cycles will be up/down during the week I do not expect a lot of overall contribution (or subtraction) for the week even though they may have 1-2 day impacts during the week.  By the end of the week the 11TD cycle should top. Setting up the next week of 5-16 (more on this later).

Here is a visual:

As I stated the 11TD cycle should top by the end of next week.  That means the week of 05-16 we have the 11TD cycle and the 22TD cycle down.  So that means the week of May 16 should be down, but just as the 22 day cycle bottoms we have a Wall cycle (20 weeks) topping and it will be down into the first week of July.  But, more important in my opinion we have the one year cycle reaching the point in its down leg (Jan-Jul) where it should start dominating to the downside.  So I believe by mid-May we will have a setup for a 6 week or so pullback in the market.  If you have gotten complacent - WAKE UP - things are reaching a critical point of change.

How big a change.  Here is a visual showing the potential amplitude of the 1 year and 20 wk Wall cycle into the first week of July when both should bottom:

As you can see the potential downside is considerable (around 280 points down on the S&P).  So this is a correction to avoid!!! or play to the short side.  And that traders is the story behind sell in May and go away. 

No this is not the big one, that starts later in the year (Oct-Nov) as the 2 year cycle and Kitchin cycle reach the point of maximum downside movement.  Of course there is the 10 year, 30 year, 60 year, 120 year cycle bottoms to follow that, but we will have time to address those at a later date.

GL traders.  Do your own analysis

May 2011 - the month ahead

I read one theory that the longer cycles have most of their down thrust in the last 15% or so of the time span.  In the case of the 1 year cycle that would be the last half of May and June into early July.  So based on this theory we should start seeing a more pronounced impact of the 1 year cycle within a couple of weeks. 

So the "sell in May" may be appropriate, but it appears we get one more push up before we see that impact.  If we do not see that push up then the sell down into the summer may be more severe than currently anticipated.   We also have a 4+ month (20 +/- weeks) in play and it should also top by mid-May.    We have a 1 month (22TD) cycle which should bottom in mid-May and top by the end of May and bottom again in mid-June.

Here is the visual:

When we combine the cycles with the chart patterns (some call these fractals) we see an inverted Head an Shoulders pattern (the low in mid-March is the Head, and the recent low is the Right Shoulder).  This also implies a push higher.  Now patterns are the result of the interaction of cycles and can be explained in terms of the cycles we currently see.

This visual shows that pattern and how it is formed by the current cycles:

So, it appears we get a push up the first part of May, and then we start a sell off that could last into the summer.  GL traders, do your own analysis.