The Cyclic Position of the Stock Indexes
Last week's trading saw the SPX once again registering the more bullish pattern of an early-week low into support, here forming it's bottom in Monday's session with the tag of 1386.20. From there, a reversal higher was seen into later in the week, with the index pushing up to new swing highs for the move in hitting a high of 1425.82 - made in Friday's session.
For the various cycles that are statistically valid in the current market environment, the 10 day cycle is now seen as 5 days along and has moved to a neutral labeling at Friday's close. The larger 20-day cycle is also now seen as 5 days along but it still regarded as bullish, while the even-larger 45-day cycle is now seen as 43 days along and is currently labeled as neutral and extended. The 120-day cycle is now seen as 80 days along and is also still regarded as neutral, while the 360-day is currently seen as 43 days along and is still labeled as bullish into what should be into later this year or into the Spring of 2009. The largest cycle - the four-year component - is also now seen as 43 days along and still regarded as bullish off the March bottom.
For the short-term, a minor cycle low was due near May 12th, plus or minus a day; the actual low was registered on May 9th. From there a minor cycle up phase was favored to take the indexes higher into approximately May 19th - which is also plus or minus a day. Once the next minor cycle peak is complete, then a retrace lower should be seen into around May 26th, which is also plus or minus a day in either direction (chart 1). At minimum, that drop should take the index back to or below it's 9-day moving average, however there is still the potential that a larger drop could be seen, simply again based upon the extended position of the 45-day cycle here. However, for this 45-day component to actually confirm a peak in place, an intraday push below the 1384.01 figure would now be needed, the new 'reversal point' for this cycle. Resistance for the move is still first at the 200-day moving average for the SPX (around the 1427-1428 level), and then the monthly projected resistance high of 1435 above that.
Stepping way back, the larger 360-day and four-year cycles bottomed at the March low, which was first suggested as a possibility with the close above VTL-2 (chart 2) - but was then given a confirmation with the weekly close above VTL-1, originally occuring several week's back. With that, there has been noted an inverse 'head and shoulder' pattern on the daily/weekly chart of the SPX, a pattern which targets a test of the low-1500's (or higher) with the same. And, if this assessment is correct, then whatever declines that should develop with the smaller daily cycles in the weeks/months ahead should ideally mark buying opportunities - in the anticipation of the 1500's being hit anytime between now and year end.
Even with the above bullish outlook for the larger picture going into late-2008 or into the Spring of 2009 (which is where the next 360-day peak is due), the SPX could run into several problems this summer.
That is, the 45-day cycle is now very extended at 43 days along - and thus is due for it's normal correction off the top. This cycle is due to low-out somewhere in the May 26 - June 9 timeframe. If and when this cycle does confirm a peak (right now, by any intraday push below 1384.01 SPX CASH), then again the normal expectation should be for a retrace back to, towards, or below the 45-day moving average on the next downward phase of the same. This moving average is currently at the 1368-1369 level, but is moving up at about 2-3 points per day. If and when we see a 45-day cycle correction play out going forward, then again traders would be wanting to look for technical indications to buy the market.
once again, as the next 45-day up phase should take the SPX back to or (ideally) above whatever high ends up forming on the current upward phase. In terms of time, the next 45-day cycle peak (the one that follows the current rotation) should be seen somewhere in mid-to-late June, which would then lead to lead to yet another correction with the same into late-July or early-August, which is where the next 45-day and 120-day combo lows are currently set to occur (chart 3).
Stepping back, the way the action could play out going forward then is for a correction with the 45-day cycle to play out in the next week or three, then to be followed by a higher high again on the next 45-day up phase into mid-to-late June; the correction with the 45-day cycle should not drop too much below the 45-day moving average. From a 45 and 120-day combo peak somewhere in mid-to-late June, the 120-day cycle would then move into bearish territory, which would then give way to yet another larger correction with this cycle into late-July or early-August. That low would not only end up as a 120-day bottom, but also as a 45-day cycle bottom as well. That 45/120 day combo low would then be expected to give way to a very strong rally into and after the November election - which also fits with normal seasonal patterns.
Good Luck and Good Trading!