I analyze macroeconomic issues from a fundamental perspective, and I analyze market behavior from a technical perspective. Original macroeconomic analysis can be found here and both macro analysis and commentary can be found on my Caps blog. If you like or appreciate my analysis, please add yourself to my Following List

Tuesday, February 28, 2012

A Look at 4-year Cycles

As I have stated many times, my Trend System does not issue signals on a strict time relationship. (See this post for more details: Dec 8 - Daily Cycles, Looking for an Edge).

But I know that most people want to and do count cycles on a strict time relationship (e.g. a seasonal cycle / 1 year, 4-year cycle, K-waves / 40-year cycles, etc.). So I wanted to take a stab at a 4-year cycle chart.

The first observation that is immediately obvious if you look at the SPX (and S&P Composite) back to the Great Depression is that the market generally trends up, and as such most 4-year cycle tops are not 'major tops'. But often are just a mid cycle climax followed by a pullback, and then a continuation (higher high) up. And what's more is that trend is observed in recent market history as well.

The way I constructed the chart below was to assume that the 2000 and 2007 peaks were major tops (and hence 4 year cycle tops) and did a best fit of 4-years cycles around those peaks. Obviously the 4-year cycle will not be *strictly* 4 years long (e.g. the time between the 2000-2007 peaks is about 7.5 years, not 8 years, which means that each '4-year' cycle is more like 3.75 years ... but almost counts in horseshoes, hand grenades, and cycles work :) ).

What I have done is place my theoretical Secular Bear Market Projection in Historical Context on the chart. And what is interesting is that the 4 year cycle boundaries line up nicely in terms of how long I think the major waves should approximately last in my projection.

Take this projection from this post: Update on Long Term Projection

This observation also fits very nicely with my Bear Market updated Price Stretching chart which is described in these posts:

-- Moving Average 'Price Stretching' Update
-- Bear Market Momentum Internals: Examination of Moving Average 'Price Stretching'

Another reason why I find this projection compelling is that it give all the internal indicators (which have been making highs right alongside price this entire rally) time to roll over and go into divergence, as discussed here: Long Term Technicals and Macro

For crying out loud nothing about this chart is bearish for the 2011 top, whereas *everything* was bearish for the 2007 top. Again, no evidence for a top call based on a look at multiple sets of market internals.

Monday, February 27, 2012

Another Upside Resolution and Interim High

How many 'Great Bear' trendlines have to be broken before you admit we are in a cyclical bull market?

Yet tops are being called again. And I am sure analysts are lining up to stick a 'P2' on the next peak. And none of it makes any sense, because there is ample evidence, which I have been citing for the last 6 months (see here: Long Term Technicals and Macro, and here: Update on Long Term Projection, and this one from mid-Oct: Revisiting the Large Count) for the continuation of this cyclical bull market.


New interim high on the SPX. Even though 99.8%, was still 'technically' valid, right?.

So ... what?

Is P2 now going to be the next peak? Or the one after that? ... or the one after that?

Will 'analysts' still be trying to call P2 all the way up to 1576.0899999.......

Saturday, February 25, 2012

Why I am not looking for 'the top' with the next pullback, whenever it happens

The market continues to go up. And the long signal on my Daily System that was issued Oct 10 is still very much intact.

At some point we are going to get a pullback. And eventually there will be a pullback that manifests as a down cycle on my 60-minute system (which has not happened yet. All of the failed signals on the 60-minute system in Jan-Feb have been failed sub-cycle tops). We started a new 60-minute cycle on Dec 23, making the current cycle 64 days long. Out of 67 60-min cycles since 2001 the average duration for a cycle (which is both the upcycle half and the downcycle half) has been 56 days. And the upcycle half of the current cycle is already longer than then average duration, which makes this rally 'mature' from a cyclical perspective.

But the point of this post is *NOT* to call for a top of some sort here, it is merely recognizing the fact that we will get some sort of top eventually, that will be deep enough to register the start of the downcycle half of the current 60-minute cycle.

The question I pose is this: Will this mark 'the top' (i.e. the start of a several month / several year down market).

And when I look at my Daily Trend System, it says pretty definitively: don't bet on it.

The study I ran this morning looked at the position of my main indicator on my Daily Trend System which has been increasing right alongside price since Oct 10. And my Daily Trend System measures cycles in the same way as my 60-min System (full cycle has an upcycle half and a downcycle half, which is not governed by time but by indicator settings, see this post for more details: Dec 8 - Daily Cycles, Looking for an Edge).

I formulated my study in the following way: Assume that my main indicator (which has not yet topped) tops right now due to a pullback (which would be met with a downcycle on my 60-min system). What would be the odds that this price peak would also be 'the top' of the current Daily upcycle?

The stats are pretty compelling: Since 1982, 18 of 20 cycles (90%) made higher price highs after the initial peak and rollover of my main indicator.

Which means that the odds of the next price peak being 'the top' are pretty small, at least from my viewpoint.

Again these are statistics, not prognostications .... past performance is no indication of future results ... yadda, yadda, yadda.

So in short, I think the next pullback (whenever it happens) is not a 'short it and forget it' type event. I think it will be a dip that will be worth buying.

Wednesday, February 15, 2012

Feb 15

No joy for the 60-min system. Daily system still on a buy.

6th verse same as the first.

Friday, February 10, 2012

Feb 10

Glutton for punishment I suppose. But the 60-min System rolled over again and issued a sell. We will see where this goes.

Daily system still on a buy. Still expecting higher prices (so if this is a pullback, I am expecting it to make a higher low), yadda, yadda, yadda....

Tuesday, February 7, 2012

Feb 7

Nasdaq 100 (weeks ago), Nasdaq Composite (last week), and now the Dow Industrials (today) have made new recovery highs.

Daily Trend System is still firmly on a buy signal (Since mid-October)

My 60-min System has cleared its sell signals and issued a buy on Friday. But I think buying a large gap up on a Friday stinks, so I didn't act on it. (Probably should have). But the real point is that the system is behaving in the same manner as it did in mid-2010/early-2011. Which means that divergence top signals don't work, the market is trending strongly. The price action is also very similar (pullbacks are very shallow and short, 2 days tops). I made that observation a couple of weeks ago, too bad I didn't act on it and loosen the leash on my 60-min system.

But, we have now transitioned from a volatile swing traders market to a grinding trending market. And that's not bearish.

Friday, February 3, 2012

Feb 3

As I was pointing out in December (and on many prior occasions over the past several months) that the comparisons between now and the beginning of 2008 were flawed. And in that particular post I was looking at moves in the sectors as evidence.

Here is an update on the sector behavior:

There is nothing bearish about this. Small caps and Energy are a week away of issuing their own positive crosses. Compare this to 2008 were virtually nothing (save Staples and Utilities) had a positive cross even on the large 2008 correction back up.

But this is the same topic that I have been discussing for months. Please see this post: Long Term Technicals and Macro, which has links to a lot of good studies that I did specifically on this point going back to August.

99.8%, still 'technically' valid, right?

I am pretty disgusted by the greater (as measured by the popularity of certain counts which are always trying to find impulses where none exist, especially in the downward direction) EW 'analyst' community, and it is getting very difficult to hide it.

-- EW Shenanigans
-- Regarding Tops and Sloppy / Misleading EW Practices

I am going back to willfully ignoring counts by pretty much everybody else (at least who displays the traits above).

edit 11:45 -- Oh, and both the Nasdaq 100 and (now today) the Nasdaq Composite have made new recovery highs.

Wednesday, February 1, 2012

Feb 1

Just another kick in the face. Strike 4? Daily System still firmly on a buy.