CNBC Europe Powerlunch
LET'S LOOK AT THE S&P 500 DAILY INDEX
Last week I said the index had to move above the September 4th swing high. Then there would be two probabilities; either a small multi day distribution pattern as soon as it got above the high, followed by a resumption of the down trend. Or it would go up to test the June / July highs and then distribute and go back to test the August low. It has now gone to a new high above the September high in a rather dramatic fashion. The index will need to consolidate this wide range day, maybe into as long as next Tuesday if we are going see a top here. It has moved above a ¾ retracement and also moved further above the high of the fourth of September than would be normal to set this up a lower high. So unless there is a distribution pattern that can be recognized something similar to the one that occurred at the July high, a test of the high could occur by October 10th.
LET'S LOOK AT THE S&P 500 MONTHLY CHART
Five year cycles have a strong history in US stocks. This is a chart of the 5 year or 60 month cycle divided into 1/8th and 1/3rd. If a time period or cycle has validity those mathematical parts of that cycle should also prove to have a vibration in time. You can see that almost every division of this time period of 60 months was significant. Most importantly the mid point of the cycle or 30 months was a significant low and it is not unusual to see a market go low to low in a time period and repeat that same time period into completing the trend. You can also see the last two divisions of the cycle were exact for lows so this time window of October 10th plus or minus a week is good probability for ending the trend if it can move up past this week.
I still don't see this as a new leg up in the ongoing bull trend but simply a further period of distribution to complete the bull campaign.
LET'S TAKE A LOOK AT US DOLLAR INDEX-WEEKLY CHART
The US Dollar could be sitting on the edge of a cliff if it shows some follow through to yesterday's move down. It could breakaway into a waterfall or capitulation move down. You can see how each rally the past two years has been less in price and time. The fact that last week couldn't get above the July/August lows leave the index in a position that could bring about a panic move down. The only thing that argues against that scenario is the fact that the move down yesterday came on a news item. But IF there is some follow through to the downside the index could be looking at a very fast move down. If that is going to occur it should start by the end of the week.