May 1

Crazy up and down market the last few weeks. 60-min system back on a sell. The short-term VIX divergence observed in the last post is met with even more divergence recently. (Chart below has the inverse in the main panel as well as SPX)

Feb 7

I am seeing an interesting setup take place, which is the 'broadening top' (which is highly distorted and stylized at this point). The reason why I think this is a possible valid setup is because of some very interesting similarities to the short term peak in early 2010.

The early 2010 peak displayed a 'broadening top' for about a week in mid January 2010. The current churn and potential broadening top here has happened the last week of Jan/first week of Feb 2013. So the seasonal phasing is pretty good. We had a strong and very pronounced 3-wave move up from the previous November lows in both instances. And we have extremely similar long and short duration PPO movements on the 60-minute timeframe.

This is making me question if this could be a reversal pattern instead of consolidation which is what I had been thinking. However, we have a pretty good defined level now (see second chart below), and if we stay above that level then I still think the 1530 target is appropriate before the next significant correction. However, if we close below it, then I think the chances of a significant correction being in progress now becomes greatly increased.

2009-2010

2012-2013

Feb 2

Based on how this wave is progressing, ~1530 still looks like a reasonable target.

'Minor' Cycle Chart

Sharing a chart that I have been playing around with trying to help discern 'Minor' Degree Cycles in the market, to see if there is any periodicity value there. Food for thought:

Update on Long Term Projection (01/19/13)

This Long Term Update will take a slightly different flavor than the last one (Update on Long Term Projection (08/17/12)) since I will be adjusting my count from the 2011 correction based on how the waves have been unfolding. I will show my rationale for that adjustment. But first I want to set the stage for the reason why I still think we are in the middle of this cyclical bull market, and not near the end of it.

Market Internals

The are a large number of market internals that still saying very strongly that this bull market is intact. I have discussed all of these several times, please see Long Term Projection, Macro, and an Analysis Retrospective for a detailed discussion and links to previous analysis and charts going back to a couple of years now.

Corporate Profit Margins still have not peaked and are making new recovery highs alongside the market. And as I have pointed out before, even if they peak this quarter the stock market will likely not be at a peak. This divergence takes several quarters/years to play out as the profit margins peak and the fundamentals start deteriorating long before the analyst community is able to confirm it.

The VIX continues to make new recovery lows as the market makes new recovery highs. If a peak in the market were to happen in conjunction with a VIX recovery low, then it would be completely counter to the 2000 and 2007 peaks which saw very pronounced VIX divergences for over a year.

The NYSE Advance/Decline Line as well as the NYSE New High/New Low Line is still making new highs alongside the NYSE Composite. Both of these displayed significant divergence for several months at the 2007 top. Now there is an issue that I have brought up before using the NYSE internals (see: NYSE Common Stock Only Indicators) and an analysis with them is less compelling due to the proliferation of fixed instrument / bond funds on the NYSE thus making less of a solid proxy for the stock market. But I still think it is still more useful than not useful.

When looking at the strength of these internal measures (fundamental, volatility, and technical) I continue to be convinced that we are still in the middle of this cyclical bull market and not near the top of it.

Wave Interpretation

In November/December I was thinking that we were in the middle of an Intermediate term correction. By mid-December it was quite obvious that was the wrong call and all we had experienced was a Minor Degree pullback on no divergence. You can see the count from my last Update on Long Term Projection (08/17/12) and why I was thinking that, which was obviously the incorrect count.

So I have been thinking a lot about the long count over the last few weeks. I was waiting for a new recovery high to cinch my theory and that has now been confirmed. The crux is that the wave behavior since the major 2011 correction is markedly different in character than the wave behavior before the 2011 correction. I outline the differences on the next chart:

I had been previously thinking that lack of Daily divergence at the early 2012 pullback meant that it was likely only a Minor Degree correction. Based on seeing three confirmed and completed pullbacks since the major 2011 correction and we can now compare sizes and durations, I am no longer of that opinion. I think the early 2012 pullback was an Intermediate correction, and that the form is different than the pre-2011 pullbacks.

The depth and severity of the mid-2011 correction and the fact that it did not end the cyclical bull market has changed the outlook of market participants. I think they are much more convinced of the viability of this cyclical bull and are more willing to 'buy the dip' on any sharp pullback (whereas prior to 2011, people were nervous and would wait for 'one more leg down' before buying the dip). This is making for corrections with spike bottoms on no divergence.

There is a loose analogy with the 2002-2007 cyclical bull market where the corrections before 2005 have a somewhat different flavor than the corrections after 2005. It is not as pronounced as what we are seeing now, but I think the precedent is there.

So with that observation made regarding the wave behavior and the observations made in the first section that show internal measures still confirming that the cyclical bull is intact, here is my updated long term projection.

Long Term Projection History and the Current Projection

I have a long track record of being consistent with my projection. It has obviously adjusted based on how events actually unfolded (absolutely *nobody* can predict the future), but this long term projection which serves as my preferred count has been quite good in general directionality and intermediate timing.

-- Nov 2010: Abandoned the Primary 2 count and adapted my leading alternate count which was a Cycle X count - The Large Count

-- Jan 2011: Rethought the size of Cycle X with some historical analysis and comparisons. I lay out my thoughts for March 2009 - June 2011 (projection at the time) being only Primary W of Cycle X - The Large Count with Historical Perspective

-- Jan 2011: Macro thoughts that accompany my projection - Macro Thoughts and Observations. Is the Bear Market Dead? Is this the Start of a new Secular Bull Market?

-- Feb 2011: Long term context - Secular Bear Market Projection in Historical Context

-- Mar 2011: An in depth study and a comprehensive list of references and analysis of previous work. I highly recommend reading this post and following the references - First Derivative of the S&P 500, Long Term Study

-- May 2011: Count of the large structure (the top of this wave) being completed in real time - May 5 (and a Long Term View Update)

-- Aug 2011: Macro thoughts in the middle of the August crash putting this wave in context (specifically refuting that this was the start of 'P3') - Update on Long Term Projection

-- Oct 2011: Real time count that pointed to the October low as being a significant low based on how the waves and indicators unfolded - Revisiting the Large Count

-- Jan 2012: Confirmation of the October low being a significant bottom - Update on Long Term Projection

-- Apr 2012: Large macro, fundamental and sentiment update. In depth post and a recommended read (many links to previous analysis) - Long Term Projection, Macro, and an Analysis Retrospective

-- Aug 2012: Projection calling for a late 2012 correction, however the degree of the pullback was misidentified - Update on Long Term Projection (08/17/12)

Primary Wave Projection

As noted above in the Wave Interpretation section, the early 2012 pullback is now assumed to be an Intermediate Degree correction, and the flavor of the wave behavior after mid-2011 is very different to the wave behavior before mid-2011.

Secular Bear Market Projection / Long Term Count

For the SPX:

And NASDAQ Composite for good measure:

4-year Cycle Chart

This chart comes from this study (A Look at 4-year Cycles) and fits pretty nicely with my long term projection. I think the next pullback would fit timing wise with the next 4-year cycle bottom (which as I show on my chart can simply be a mid-range correction).

Jan 15

Here are a few quick thoughts. I still don't have much to say on the markets right now. Like I said on December 18 the time to be bearish was over, and it was now time to be generally bullish.

We had a spike bottom in November on no daily divergence at all. But instead of that being part of a first leg down, it looks like that was all of the correction we were going to get. My 60-minute, Daily and now Weekly systems are all back on a buy signal. On top of that the Russell 2000 and Wilshire 5000 are back to recovery highs, S&P 500 is a point away, Dow Industrials not far behind, and the Nasdaq is still lagging a bit.

So whatever pullback comes in the near term, my feeling at this point is that it will not be the start of some significant downtrend. I think we have more upside before the next possible Intermediate term pullback (I will discuss my thoughts on that in a different post).

But for right now, here is my rough guess as to what the next several weeks could look like. I really do not think we will get a major pullback, and I do think the SPX wants to challenge 1500.

Sep 19

I occasionally go back and look at my monthly charts and today I was looking at my SPX monthly chart. Here it is for any one that is interested. I still don't think we have seen 'the top' / end of this cyclical bull market. Still no divergence on the monthly MFI for the last series of peaks over the past year. Read this chart below in conjunction with my most recent long term projection (with lots of links to previous long term projections): Update on Long Term Projection (08/17/12)

May 23

What a crazy couple of days. However these gut-wrenching moves have a potential corollary, in recent history even. The move out of the May 2011 top.

Here is what that looked like:


Here has what has unfolded so far:


Is the correction done? I give a little better than even-odds that it has. Like I said Saturday, the 1290 target has been met, and that this week needed to rally or at the very least stop crashing. That was not a prognostication, but merely an observation of what needed to happen this week to keep the Long setup which has been open since Oct 11 on my Daily Trend System alive. And we had a huge scare 'redux' again today but a strong rally into the close.

Which means that so far a turn looks to be occurring exactly where it was needed. So for this corollary to play out, the bulls need to make significant progress in confirming this breakout Thursday-Friday. We we see if they can manage it.

Here is my current best guess at a count:

May 16

My 60-minute system is displaying some crazy divergences. They are as severe as they were on the Nov 2011 and Dec 2011 pullbacks.

But a divergence by itself won't say when a pullback is done. So I am looking for other data to see if we are near anything important. Here is one view on the Daily chart. We are at a breakout retest line at a 38% retrace with oversold short term conditions.


The next view is a long term weekly chart looking at lateral support 'strata'. And it looks to me that this pullback is moving right into a zone that is consolidating the breakout.

Apr 13

We have a more significant weekly close in play now (largest weekly loss for the year). Per my Trend System, we still have a 60-min Down Cycle and Sub-Cycle sell signal (see: Apr 7 - Daily and 60-min Cycles, Looking for an Edge). The low on Tuesday was a spike bottom on my 60-min system (no divergence) and like I stated in the study from Apr 7 above 90% (61 out of 68) sub-cycle bottoms after a down cycle signal occur on divergence. This means that my system is telling me that the odds are very favorable/compelling to wait for another price low before the next sub-cycle bottom signal gets issued.

With the close this week, it looks like we are going to get one in the next week or so.

Looking ahead, there are two spots that look compelling from a pullback and support standpoint.



Both of these zones would make for a very nice looking Cup and Handle on the Daily chart.



And like I said before (Apr 7 - Daily and 60-min Cycles, Looking for an Edge) even though I am still looking for lower low on my 60-min system, my Daily System has not issued a sell-signal. And even more, my main indicator on my Daily System increased alongside price all the way up to early April peak. And as I said in the study, 90% of all Daily Cycles with the same characteristics (18 of 20) made higher price peaks after my main indicator rolls over (i.e. 90% chance that I will see a divergence before I get a Daily System sell signal).

For this reason (among many others) I am not looking for a 'major' top here. Rather I think this is a tradeable pullback from a swing trading perspective which will lead to a very buy-able dip from a longer term position trading perspective.

Mar 30

Two weeks of nowhere.

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.

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.

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.

Dec 27

There continues to be a lot of comparison between now and early/mid 2008, and I continue to say that the comparison is not appropriate. There are some similarities, but there are quite a large number of differences. One of those differences are sector behaviors.

In 2008 nearly everything (with the exception of Staples and Utilities) was showing weakness all together. But right now the market is much more mixed compositionally. Both Technology and Consumer Discretionary are still holding up fairly well, pretty much two of the last sectors that should if we are entering into a crash phase.



My $0.02 at any rate.

Dec 23 - Happy Holidays!

First: Happy Holidays! I hope everybody reading this has a wonderful Holiday season.

Second: Some analysis.

I continue to see this move as bullish for several reasons.

1) The daily chart setup continues to be valid

I am referring to this study: Dec 8 - Daily Cycles, Looking for an Edge. This setup continues to be valid and the last 3 days has made the setup appear to be more likely on my daily indicators

2) 60-min statistics are very compelling

As I said on Tuesday a 60-min buy was issued. Today I got a confirming signal from one of my secondary indicators. And this has happened in a very specific way. I ran a study on my cycle system and since 2001 there have been 67 similar setups and 93% of them led to higher highs (typically several percent higher). Again, these are stats not predictions, but it is a very compelling stat.

3) Very bullish seasonality for not only the week before Christmas but especially the week after

See: http://www.bespokeinvest.com/thinkbig/2011/12/23/market-performance-during-the-last-week-of-the-year.html

4) Closed above the 200 day MA

This is a nice confirmation for point 1 above and a bullish way to end the day before the Christmas stock market break.

5) Closed above the downtrend line

The downtrend line that the market has been unable to breach for the last 5 months was finally surmounted today. And that's not bearish.



Third: Some eggnog ... with a very healthy shot of whisky. Time to start drinking :) Happy Holidays!

Dec 21

Just another one of binv's crazy ideas. Don't pay it any attention.

Dec 8 - Daily Cycles, Looking for an Edge

Okay, enough things have happened that I can now start thinking about this scenario more concretely.

1. The overbought condition on the 60-min Trend System has been relieved. And the fact that it is done so in a relatively sideways manner is pretty bullish
2. A couple of days ago a Daily Cycle Long Signal occurred on my Daily Trend System.

I talked about a potential setup last month here (Daily Cycles - Looking for an Edge), that did not end up materializing. The triangle did not break up, it broke down pretty hard and the Daily signal cross never happened. But the rally this past 2 weeks reversed that trend and we now have a positive signal. I will rehash much of what I said last month (because the stats are still valid) and what I will be looking for in the current environment.

There has been a big (and good/useful) discussion of cycles in my blog comments recently. What I want to do in this post is to take a step back and offer a statistical look at the cycle signals from my Daily Trend System

Note: I am referring to my Daily System, not my 60-minute System. I have backtested my Daily System to 1982. And like with my 60-minute system, I trade the signals based on the sub-cycles. The last Daily System trading signal was a Cover Short/Establish Long signal at 1181 on 10/10/11 on the SPX (see here and see here)

There are multiple sub-cycles within a cycle in my system. And while I don't show the cycle signals (because I don't trade off of them, I use them to 'reset the boundaries' of my system, and they are used as confirming indicators), they do have some analytical usefulness and might give some insight here.

The reason being that we did get a Long Daily Cycle Signal earlier this week and now have a short term pullback to relieve overbought conditions, which I tend to view as a buying opportunity.

My cycles are not defined on some strict time relationship, in fact there is no time requirement at all. It is based completely on indicator moves (mostly MA based). Since 1982 there have been 24 cycles (with a long/up half and a down/short half). Minimum Duration: 154 days, Maximum Duration: 951 days, Median Duration: 390 days, Average Duration: 444 days.

So let me pose this hypothetical: We close above the 200 day MA sometime in the next week.

Like I said above, we got a long cycle signal earlier this week. I measure a cycle from long cycle signal to the next long cycle signal. This made the last cycle 440 days, which is right around the average and median cycle durations. That is good and makes sense.

So what would be the odds that a close above the 200 day MA would be a 'fakeout' (i.e. that it close slightly above the 200 day MA in mid/late Dec and then crash, in a Wave 3 down or something similar)?

Even though I don't trade the cycle signals, I ran a study that was formulated like this: From the price the long cycle signal was issued, what is the highest sub-cycle signal price before the next cycle short signal was issued? This gives a way to quantify how many cycles did not 'fail'. The stats are pretty compelling:

Study Results
---------------
24 Long cycle signals
21 cycles made higher high sub-cycle signals before next cycle sell (88%)
Max Gain: 68.0% (Max sub-cycle peak, not necessarily the next sub-cycle peak)
Avg Gain: 19.7% (Avg sub-cycle peak, not necessarily the next sub-cycle peak)
Avg Loss: -2.2% (Max value of failure)
Max Loss: -2.8% (Max value of failure)

Here is what I see, and here is the edge that I think the stats are giving me:

If we close above the 200 day MA (in essence making a higher high), there is an 88% chance that we made a legitimate bottom in October, that the last higher low confirmed that bottom, and that we should be looking for more upside (and on average a large amount of upside, 20% gains).

Again, these are statistics, not prognostications.

But given the way this bottom has developed on my Daily System, and the bullish seasonality, the fact that we made a higher low above the October low which confirmed the divergence seen at the October bottom, the fact that the overbought conditions have been relieved on my 60-min trend system, etc. etc. I think if there is any edge to be gained from this analysis, it is to go long after this current pullback ends [aggressive] or to go long after a higher high / close above the 200 day MA [conservative] and not to expect a fakeout and crash (end of Minor 2 and looking for a Minor 3 down, or something equivalent).

Nov 30 ... and a *CRAZY* idea

Yesterday was an odd day. Monday had a pullback which was shallow. Then yesterday ramped up in the morning and consolidated / tested the breakout the rest of the day. My trend system had been on a buy since Monday morning (since the gap) and I was just waiting for an entry. It seemed to me like me market was consolidating for a move higher, so I bought: See here and here

And like I was showing Monday, we had a nice proportionate move on many levels. But I would like to go back to a chart that I was sharing with HighRev on Nov 18 (see this chart for the original). The more this wave has unfolded, the more compelling I find the parallel. Here is the updated chart:


I think whatever the next leg ends up being, I think we have more upside to the end of the year.

.... Now, on to my crazy idea .....

First, don't read too much (if anything) into this. It is just an idea that I have been kicking around in my head for awhile. It is not a preferred count. I don't even think it is a likely count, not yet at least. But it has been marinating for awhile and I am just putting it up publicly to see what I think about it on the screen (to make it slightly more 'official' as it were).

The reason why I am thinking about it to begin with is because the last year and a half has begun to take on a pronounced sideways feel to it. And despite all of the analogies floating around, I don't think the comparison to 2008 is appropriate. Way too many people are expecting it. It just has a false ring to it. And I don't think the macro is as *acutely* dire as it was then (which so many downside economic surprises). Yes the EMU is a mess (and flawed), yes I think there are major dislocations to come. But it is a question of timing. Can things be held together for awhile longer? I think the answer, surprisingly, is yes. And I think that is very different than most of the commentary out there, which makes it somewhat contrarian. I don't know, we'll see.

But back to the crazy idea. I wanted to see what a pattern might look like to explain a large sideways move (not topping), that would fake a bunch of market participants out. I mean the thing barely looks like a triangle. But then neither did the one on the BKX in mid 2009.

Food for thought. Feel free to comment or throw poo at this count. I don't much care either way. I am simply thinking about it right now.

Nov 16

Still waiting for Godot. .... has he been spotted?

Also notice the retrace chart in the last panel. Since the (potential) triangle began, there has been no fewer than 9 overlapping moves of > 1.5%. Murderous.