Saturday, June 23, 2012

Peter Eliades: 360.4 CD Cycle = June 25 CIT ?

Stockmarket Cycles Special Report for Friday, June 22, 2012

This report is being written just before the potential resolution of a cycle or turning point pattern that has been very consistent for almost 30 years. As so often happens, we stumbled upon the pattern over the past week and we were amazed at the consistency and accuracy of many of the prior resolutions of the pattern. Because the pattern has been so consistent, we wanted to show it to you in as much detail as we could so we put together nine different charts that range from as early as 1973 right up to the next potential resolution whichis due on or within a few days of next Monday, June 25.

Cycles have become far easier to uncover nowadays as opposed to the detailed visual analysis that was required just a decade or two ago. Computer tools allow us to quickly span time periods with varying cycle and turning point periodicities. Almost all the work that we do on daily charts translates cycles into trading day cycles as opposed to calendar day cycles. We have classified the cycle we are about to present to you in graphic detail as a 249 trading day period. Depending on how far back in time a pattern maintains its consistency, we also like to classify the same periodicity on the basis of calendar days. In the current case, the calendar day periodicity turns out to be 360.4 calendar days. Here is how we handled the charts we are about to show you. Each chart shows four resolutions of the pattern. At the bottom of each vertical line which represents the resolution of each individual period, we have entered a date. There is a slightly arbitrary nature to these dates because we looked at the ideal resolutions of both the trading day and the calendar day periods and then examined our charts to see which date within a few days best represents the resolution of the pattern in a topping or bottoming formation. So that you may have a record of the idealized resolutions of this pattern, we will list the idealized resolution for each calendar day period. If you are interested in doing your own research or comparison of the idealized dates with the actual dates of tops or bottoms, you can compare the dates we are about to present you with the actual resolution dates that are presented on the charts to follow. Here is a list of the idealized dates of resolution of the 360.4 calendar day periodicity:

 January 5, 1973 September 30, 1992 June 30, 2011
 December 31, 1973 September 25, 1993 June 25, 2012
 December 26, 1974 September 20, 1994
 December 22, 1975 September 16, 1995
 December 16, 1976 September 10, 1996 Future Dates
 December 12, 1977 September 6, 1997
 December 7, 1978 September 1, 1998 June 20, 2013
 December 2, 1979 August 27, 1999 June 15, 2014
 November 27, 1980 August 22, 2000 June 11, 2015
 November 22, 1981 August 17, 2001 June 5, 2016
 November 18, 1982 August 13, 2002 June 1, 2017
 November 13, 1983 August 8, 2003 May 27, 2018
 November 7, 1984 August 2, 2004 May 22, 2019
 November 3, 1985 July 29, 2005 May 17, 2020
 October 29, 1986 July 24, 2006 May 12, 2021
 October 25, 1987 July 20, 2007 May 8, 2022
 October 19, 1988 July 14, 2008 May 3, 2023
 October 14, 1989 July 9, 2009 April 27, 2024
 October 5, 1991 July 5, 2010 April 23, 2025

We have gone into this detail because we believe it is remarkable how many times the previous resolutions led to turning points of some importance. The charts above will give you a graphic idea what we mean. Originally, we were going to leave out several sequences whose resolutions did not appear as consistent as others. As it turned out, the only years as we left out of the charts between 1973 and the present were 1976 and 1977. We think you'll be impressed at the consistency of the resolutions of this pattern.

Since 1973, there have been an average of 252-253 trading days per calendar year. That means that the 249 trading day pattern falls just 3-4 days short of an exact one year pattern. The first three charts covering most of the time span between the resolutions of January 1973 and October 1990 are line charts representing the daily closing price of the S&P 500. The remaining charts are intraday bar charts which show the full range between highs and lows each day. Some of the turning points marked only relatively short-term market turns but a surprising number of them marked very important market turns. For example, the very first resolution in the charts occurred in early January 1973. The high registered at that turn was not approached again until seven years later on the S&P and over a decade later on the DJIA. In like fashion, the low registered in December 1974 has never again been approached on the Dow or the S&P. If we look at the recent resolutions, the idealized resolution that was due on July 14, 2008 actually occurred only one day later on July 15, 2008. That resolution led to an immediate rally of 9.4% from the low on that date to the high one month later, but the July 15 low lasted for only two months before it was broken. The next idealized resolution was due on July 9, 2009. Although an important low had already been registered in March 2009, a decline of almost exactly 10% from high to low was registered going into the scheduled resolution of the pattern on July 9, 2009. An important low was established at that time at a level which has never since been returned to. The next resolution was due ideally on July 5, 2010. An exact closing low occurred on July 2, one trading day before that idealized date. The decline which ended on that date began on April 26, 2010, and saw the S&P lose over 17% of its value from high to low. Once again, however, the low seen at that July 2, 2010 resolution has never since been approached. The next idealized resolution was due on June 30, 2011. On July 7, four trading days later, the S&P reached a high which led to an immediate decline of 23.1% over the next month and did not reach a more important bottom until October 4, 2011, over 26% below the high established in early July.

That takes us to the next scheduled resolution which, on an idealized basis, is due on June 25, 2012. But here is where things could get tricky. On June 19, just four trading days before the expected resolution date, the S&P 500 reached a secondary top which had retraced an almost exact Fibonacci 0.618 of the April 2 to June 4 decline which preceded it. Depending on other factors, that June 19 high could fit the qualifications as another turning point on the pattern we have been discussing. On the other hand, the very sharp one-day decline that occurred on Thursday, June 21, could be setting up a bottom of some importance closer to the idealized June 25 resolution date.

There is no ideal way to resolve the question of whether this expected resolution of the pattern will be a top or a bottom. Because the time window extends into next week, we will probably have to wait until the week ending July 6 to confirm whether the resolution turns out to be a top or bottom based on whether the high within a week of June 25 is surpassed or whether the low within a week of that date is surpassed. We can, however, use our cycle projections as guidelines. If we start with the longest projection spans, the nominal four-year projections, it is clear that there are upside projections that have been outstanding since late 2010 that have not yet been achieved. Those projections will remain outstanding until they are met or invalidated. The current projection configurations would need to see the Dow move below 10,000 and the S&P 500 move below 1050 over the next 2-3 months in order to invalidate those upside projections. For those of you who have not seen or who have forgotten what levels those projections call for, the Dow projection calls for a nominal four-year cycle high between 14,043-15,745. The S&P 500 projection calls for a nominal four-year cycle high between 1500.15-1736.56. Those projections continue to suggest that we have yet to see an important market top.

The next longer nominal projections are the nominal 78-80 week projections. Unfortunately, they are not presenting a clear picture. Look at the current nominal 78-80 week projection chart for the S&P 500.

The S&P chart shows that prices broke above the offset lines early this year around the 1342 level, giving an upside projection around 1610. Achieving that projection level would take the S&P to new all-time highs so this obviously qualifies as a potentially very bullish projection. Now, however, look at the same projection chart for the New York Composite Index.

Notice some of the distinct differences in this chart. First of all, on a simple technical basis the New York Composite Index failed to confirm the move by the S&P 500 above the April-May 2011 highs. But more importantly, there is no analogous clean break above the projection offset lines such as the break above seen on the S&P chart. The most recent decline in the market saw the New York index move down alongside the offset lines and has just started to move up over the past 2-3 weeks.

Because the New York Composite Index has established a reputation over the past few decades as being the most consistently accurate projection generator, it's failure to behave in the same fashion as the S&P 500 gives us less confidence in the analogous S&P 500 projection.

The next chart is an intraday chart of the S&P 500 e-mini futures. We have labeled some technical areas we believe may turn out to be important. This chart covers the market action over almost the past two months. It is an 81-minute bar chart. The reason we use the apparently arbitrary time period of 81 minutes is that there are 405 trading minutes in a daytime trading session of the futures, so five bars of an 81-minute chart covers the complete daytime trading session. The blue line on the chart is the equivalent of a 10 day moving average consisting of 50 81-minute bars. The green line near the bottom of the chart is a 1000-period moving average which is the equivalent of a 200 day moving average on a daily chart. The chart gives an appearance of an inverted head and shoulders formation. The inverted head would be the low seen on June 4 with the left shoulder above the May 18 label and the right shoulder above the June 11 and June 13 label. Drawing the neckline of the inverted formation is a judgment call. We used the highs in late May and drew the neckline through the highs in early to mid June, but we ignored the spike high of 1330.00 that was registered on June 11. Notice how the latest decline stopped almost exactly on that neckline. That would be the technical expectation if this turns out to be a bullish formation. A convincing break below that neckline would have more bearish implications, at least for the short term. We have also drawn in an arbitrary channel which, as yet, has no real validity. It is simply based on constructing a line that begins at the low of June 4 and is parallel to the tops line between the June 7 and June 19 highs. The chart gives you some guidelines to watch for early next week. If the S&P futures remain above both the lower parallel line and the neckline described above, and especially if they move convincingly back above the 10 day moving average line, a more bullish short-term resolution can be expected. If, on the other hand, the potential support lines noted above are broken, expect a more bearish short-term resolution.

Several times over the past year we have discussed Terry Laundry's T-Theory in association with the advance-decline line of the New York Stock Exchange. In our newsletter of March 2011 we gave our interpretation of that theory as applied to the long-range daily chart of the New York Stock Exchange daily advance decline line and we came up with three alternative resolutions for a final important high on that indicator. The last date for a potentially major high was given as October 22, 2012. Inasmuch as that indicator reached new all-time highs as recently as May 1 of this year, that eliminates the alternative dates that were given last year for a potential top and leaves only the October 22, 2012 date. The implications, of course, from that conclusion are that the market will continue to act favorably into that time zone. In fact, even if the analysis is correct and a major top is reached on the advance decline line around late October of this year, that still leaves open the possibility that the popular market indexes could reached new highs after the top in the advance decline line. In fact, as we have noted so often, it would be very unusual not to see one or two of the major market indexes make new highs after the ultimate high registered on the advance decline line. For that reason, until we see more concrete evidence that an important top has been formed, we must allow for the possibility, and even the probability, that new highs are in store for the stock market. We will be watching closely over the next several weeks for any evidence that that prognosis could prove to be wrong.