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Crazy gap down, with a reversal and run up until Wed to close the gap, and now trading down again.
The 60-min sell signal (sub-cycle) since 6/20 is still in effect and today we got a Down Cycle signal. The reason this is of interest is that I am now expecting a 90% chance (63 of 70 similar occurrences) of a lower low below Monday's low before the next 60-min buy signal will be issued (when a Down Cycle signal is given after a sub-cycle top signal).
Fantastic interview with Warren Mosler. He discusses QE, earnings, cash flows, demand leakages, and the potential fiscal cliff.
I completely agree with his take that current levels of deficit spending are still sufficient to maintain aggregate demand (and hence corporate revenues and profits) to a level that is 'good for stocks'. I don't think we are seeing a 'major top' in the stock market. I think the real risk to the stock market and the economy is the *potential* 'fiscal cliff'. But as I said here at the beginning of June this would be the mostly widely telegraphed macro event ever. And like Mosler says, I am highly doubtful that is being 'priced in' to stocks right now.
Which means that I think the current pullback since May (and that we are still potentially in) is a correction and the cyclical bull market will continue, not the start of a cyclical bear market.
Please click on the link below to listen to a conversation with Warren Mosler. Topics include: Demand leakage (how to fix end-demand), Fed Policy (QE is counterproductive) and overall market/econ outlook for US, Europe and China.
Monday: Gap up and breakout of the last week's congestion
Tuesday: Strong move up right to critical resistance. The Daily System *almost* issues a buy signal (just a couple of points shy), but midday the market pulls back.
Wednesday: Usual Fed day shenanigans, but the second move in the afternoon was strong enough to issue a 60-minute sell signal. The Daily System is still holding just short of a buy signal
Today: Huge sell off. The market turns away from the Daily buy signal.
Lot of weirdness at play here, but the 60-minute system looks like it could be leading the way. The Daily System is showing the market has lost its nerve right at a critical resistance level and so the sell signal from 6/01 still remains intact (despite continuing to be pretty far underwater).
Looks like next week will be another 'interesting' week.
Perfect week to be out. No new signals given (very sideways / consolidatory week). 60-min buy signal is still intact and the Daily system will likely issue a buy signal next week with any more strength.
I will be out next week, so I will not be able to send out any signals real-time. What I will do instead is send out the retroactive signals at the end of the week. Obviously imperfect, but that's what it is.
Here are a few thoughts and observations as I look ahead to the possibilities for next week:
1. More upside on the 60-min System.
We had a buy signal on Wednesday morning (see: https://twitter.com/binve01/status/210369520337039360) from a sub-cycle bottom. And today that signal was further confirmed with a Cycle bottom. Which means that a significant divergence is required before a sell signal will be issued, which means I expect another high above this week's high.
That high doesn't have to come next week. In fact it would be very healthy if the market too a breather early next week to consolidate the reversal (and maybe set up an inverse head and shoulders).
But however it manifests, I don't think this upmove is over.
2. Potential bottom on the Daily System.
As I said on June 1 there were a large number of reasons why I thought the Daily sell signal was suspect. We made a lower low on Monday after last Friday's sell signal, reversal on Tuesday, and then traded up the rest of this week. As it stands, we now have a divergence at the Tuesday bottom over the last down sequence since May. The Daily system is obviously slower than the 60-min system so my indicators have not turned around to give a buy signal yet. But another week like this past week and it likely will.
With the sell signal on Friday from the Daily System I have been doing a lot of thinking about the current count. Like I said on Friday there are still a lot of reasons why I think this correction is 'suspect' (see Friday's post and comments), but we have a sell signal and I am respecting it.
But the count is ambiguous. We did not make a higher high above the March high in May (although the Dow did), which my system was expecting. I was thinking that the move up in May was part of the correction, but now I think it is a failure (something that E-T was pointing out) with all the evidence considered combined with the Daily sell signal.
Here are my current thoughts on what could be happening. I am not hard over on any count at the moment because I am seeing conflicts on so many charts, but for many reasons that I have elaborated upon previously I still don't think this cyclical bull market is over.
Sell signal was issued on the Daily System today. This was not a normal exit signal, which is what this setup was looking for Apr 7 - Daily and 60-min Cycles, Looking for an Edge. It was a forced sell because a Down Cycle signal was given (which is uncommon, the signals are typically a sub-cycle top/bottom signals).
The way this signal was made is 'suspect' (non-normal moves relative to significant MAs, some secondary signal non-confirmations, etc.). And I think the fundamental environment is also very 'suspect'. But the signal is given and I am respecting it.
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