Looking back at the week of 08-01-2011

The extent of the sell down definitely exceeded my expectation at the beginning of the week.  Of course, I thought we would turn by mid week - which did not happen.  So I thought it would be wort while to try and identify what I missed.

To begin with there was the news out of Europe.  News can always be fly in the milk.  We don't know what the news will be or when it will occur   I believe the news out of Europe did impact our markets.  I also believe by the end of the week (new plan from the Euro zone)  much of that impact was taken out of the market as shown by the recovery off the mid day lows.

So I went to Stockchart.com and charted the DPO (Detrend Price Oscillator - attempts to remove oscillation of market due to cycles).  I was using the S&P. I detrended for the 20 week cycle.  Now I had anticipated that this cycle would bottom end of next week or early the week after, but it now appears it bottomed this week.  I detrended the 34TD cycle which bottomed mid week.  I detrended the 22TD cycle which topped Monday.

As a result we see the 20 week cycle contributed about 110 points of downside since its top (mostly in the past 1.5-2 weeks).   The 34TD cycle contributed about 80 points of downside since its top.  That is 190 points of downside.  The 22 day cycle contribute around 44 points of upside during this period.  So we have 44 - 110 - 80 or 156 points of downside over the past 3+ weeks since the top around 1356.  That gives us an objective of around  1200.  That leaves about 40-50 points of downside/recovery due to news.  So that means we overshot (and recovered) about 50 points to the downside.

Here is the chart of SPX from stock charts showing what I said above:

I want to thank Shadow7 for his suggestion I had the bottom of the 20 week cycle positioned incorrectly.  I encourage other readers to raise issues when they feel I may have missed something or am not interpreting data correctly.  I believe though if you study the chart it does explain the past week.
Hopefully I have learned from this......  

comments and outlook for 08-05-2011

Maybe given my miss today I should give up on making daily calls.  Totally missed the call for today.  What happened?  Can't be sure, the next few days may clear up what happened.  Though - if you have been following the conversation between Shadow7 and I you know we have been discussing the timing of the 20 week cycle bottom.  We may have gotten that bottom today???

When it comes to longer cycles in theory most of the actual downside will occur in the last 15% or so of that cycle's down leg.  For the 20 week cycle that would be 15% of 10 weeks or about 1.5 weeks.  So I took a look to see what level we might expect based on the 34TD cycle and 20 week cycle bottoming this week.  This ignores the effect of shorter cycles  - I was looking for a possible explanation not exactitude.  The 20 week cycle has about 80 points of amplitude.  The 34TD cycle also has about 80 points of amplitude.  So that is about 160 points of potential down side if these  two cycles bottomed together.  We started this down turn around  1356.   1356 less 180 is 1176.   So this allows for some 24 points of up side from the 22TD cycle over this period. (which topped and turned down within the last 3-4 days.).  So this is a possible explanation - the 20 week and 34TD cycle bottoming together (within a day or so of each other).

Like I said - the next week or so should tell the story, I was not expecting these levels until mid August when I expected the 22TD cycle and 20 week cycle to bottom together.  So if the 20 week cycle has/is bottoming  the mid month bottom will be less severe than I expected.  Some of today's weakness may bleed into tomorrow, but we may have seen most of the selling for now.

So lets say we see some weakness early and then get some buying and close to the upside (this assumes we did see the 20 week cycle bottom).  Here is a visual of the shorter cycles:

Gl traders.  Do your own analysis and be careful.  Had stop stops hit today and avoided extreme pain.

Stage set for a trend change signal ($vix)

The VIX has now advanced over 97.5% from its low in late April.  That is the first requirement to get a trend change signal to "up".  The second requirement is to get 3 consecutive green days.  Now I have seen those green days come as soon as 3 days later.  On the other had I have seen it take weeks.  In late 2008 and early 2009 it took months to get a completed trend change signal (you would have avoided the complete meltdown) if you waited for the signal, because the prior signal in August of 2008 was a trend change down.

So it is time to be aware and watch for a trend change signal.  The trend change usually occurs  no more than 4-5 days after the signal  is completed and the 3 consecutive green days may even be part or the trend change.  Not every trend change will generate a signal, but when a signal happens it is almost 100% accurate. The signal does not predict the length of the change - it can be a few days to months.

See prior posts on this.

Comments and outlook for 08-04-2011

I told you late last week to expect more volatility.  I think you will agree that over the last 4 days we have gotten that.  This is typical as cycles make a final push to a bottom (or a top).  I was wondering how much bleed over we would get from yesterday's sell down and close near the lows.  It was considerable.  Still by the end of the day my long purchase yesterday was in the green and QID was below where I sold it.   My timing was not perfect (it seldom is), but I believe I cut back my short position at an acceptable level and increased my long exposure.

Expectations for the economic #s have been lowered enough that to beat or meet them should be no problem.  Today's ISM #s and ADP's employment #s were not good, but they did not result in continued sell down for the day.  So I do not expect much of a reaction to #s unless they are absolutely terrible over the next few days.  Of course, Europe could always blow up and that would definitely move the market down.

For tomorrow we have the 2.8TD cycle topping mid day, the 5.6TD cycle up, the 11.2TD cycle up and the 34TD cycle up (for about 3 weeks).  The 22TD cycle is down until around Aug 17.  If you have read the prior post and exchange between myself and Shadow you know there is some question about the exact status of the 20 week cycle.  I have it as down.  The 65-70TD cycle should also be down.

So I believe there is an upside bias, but given the position  of longer cycle (down) I would expect any move up to be moderate.  I think we will trade in a S&P range of  1247 to 1279 tomorrow and may end up by about 10 points on the S&P.

Here is a chart of the S&P (Note I shifted the cycles to the right by almost 1 day):

  GL traders.  Do your own analysis.  Be careful, any up move may be short term (5 or so days).

Wall (20 week) cycle - bottom today or in 2 weeks?

If you follow my posts and comments to those posts  you know that Shadow7 thinks the 20 week cycle bottomed today, whereas I have it positioned to bottom in about 2 weeks.  Now David Knox Barker is the authority on the Kitchin and Wall cycles IMO.  So see what he thinks:  http://www.safehaven.com/article/20555/tracking-the-wall-cycles-in-search-of-the-business-cycle-top-in-2011 (I believe this is his last article on the subject).  Now I copied the second chart inverted colors to make it more readable and added a couple of notations in the bottom right corner.  Here is Barker's chart with my notations:

Traders - you decide.  Now or in two weeks? Now I agree that the 20 week cycle has reached the point where it is starting to (should) exert maximum downside momentum.

comments and outlook for 08-03-2011

Was today a selling climax?  Hard to say, but it could have been.  Still, when the market ends near the day's lows it leaves one concerned about the next day and if there will be some carry over to the next day. Regardless - I sold the second of three tranches of QID today (like usual left too much on the table).  I also added to long positions (too early, but it could have been worse).  Yes Virginia - I do trade my analysis. So I am now about 2 X 1 long.

Was today the bottom?  It is always difficult to pinpoint the exact bottom, but according to my analysis today should have been the bottom.  Shadow thinks it will be tomorrow, and I would not argue with that as it is easy to be off by a day or so. If we get a 1-2% downside move tomorrow I expect I will increase my long to shorts to 3 X 1.  Yes, I generally hold longs and shorts, because like I said pinpointing turns is not exact.

Tomorrow the 2.8TD, the 5.6TD, the 11.2TD, the 34TD cycles should be up if I have them positioned correctly.  The 22TD cycle and 65-70TD cycles should have turned down.  The 20week cycle is down and should bottom around mid month.   Overall we should have a flattish day with an upside bias.  The range should be 1247-1279.  If we break below 1247 then the downside potential is around 1228.

Here is the SPX chart:

GL traders.  As always - do your own analysis and be careful. 

comments and outlook for 08-02-2011

We just keep getting bad economic #s - like the ISM #s today.  This is in addition to all the issues I mentioned over the weekend.  The MSM though is spending most of their time talking about the "deal" in DC.  Assuming the deal becomes a "done deal" it will be forgotten by the end of the week, but the economic #s just keep on giving.  Hehehe

Today started like a house on fire.  Somebody forgot to call the fire department and an hour later the house was ashes (after the ISM #s).  Of course, this was consistent with what the cycles were predicting.  By the end of the day the market recovered substantially.  I would like to point out even though we closed in the red the VIX was down over 6%.  Given the strength of the recovery the VIX may be telling us that today was the bottom?  It had that feeling.  So I think there is a good chance (close to 50%) that the cycles bottomed today.  If not the bottom should happen in the morning and the shorter cycles except the 22TD cycle will be up by the end of the day (the 22TD cycle tops and turns down).  Watch the pre-market and decide if you want to risk a long trade tomorrow.

I believe there may be indecisive action early and by the end of the day we should rally some and have an up day.  Here is a visual:

GL traders.  Do your own analysis.  Be careful.