next to of course acts of god American presidential elections provide fundamental triggers which will tip financial markets in the direction that the cycles are leading them. Last week Hurricane Sandy (or Superstorm Sandy) caused volatility and a shortened trading week in the US markets, leaving behind a potential if uncertain 20-week cycle trough. That potential 20-week cycle trough was followed by very “corrective” market behavior, which proved to be false optimism that struggled in vain to prevent the cycles from doing what they needed to do: which was to bring the US markets down into a deeper 20-week cycle trough. This week’s US elections provided the trigger for the markets to stop fighting the cycles, and they fell hard. That 20-week cycle trough might have formed on Friday 9 November 2012 but of course it is too soon to tell. If the trough didn’t form yesterday, it is expected to do so soon. I feel obliged to remind you that when the trough does form the general outlook is still bearish, and so I continue to expect surprises to the downside.
(with apologies to e.e. cummings)
Last week I pointed out that the way in which the S&P 500 had been tracking along the 20-week FLD was bearish and that another fall into the 20-week cycle trough was likely. On Tuesday this week the S&P 500 rushed back up to the 20-week cycle FLD, gave it a final kiss goodbye, and took the downward plunge I was expecting on Wednesday.
It has been 157 days since the 40-week cycle trough in June this year, or about 22 1/2 weeks, and so the 20-week cycle trough is overdue. Of course when underlying trend is bearish (as it is) troughs occur late.
We have been tracking two analyses in the US markets, and I have been displaying the alternate analysis in the Nasdaq recently. This week that alternate analysis was eliminated because we have passed the reasonable length of an 80-day cycle since the trough on 25 July 2012. And so we are left with only one reasonable analysis in the US markets, the analysis that I have been presenting in the S&P 500. Here it is in the Nasdaq:
Of course we are expecting a trough of the 20-week cycle, but as I have explained at length in previous posts I believe that the US markets have some catching up to do on the downside (relative to other markets around the world) on the way down to the 18-month (at least) trough expected early next year. It is possible that the 20-week cycle trough will be a subtle affair, much as it was on the upside in January this year, in which case trying to catch the trough (even though it is of 20-week magnitude) in such a falling market could be a little like trying to hop aboard a train which is not scheduled to stop at your station.
The Euro is continuing to describe the bearish M-shape I mentioned last week. A 40-day cycle trough is expected soon, but here too we must face the bearish overtones. The failure of the current 80-day cycle peak in October to surpass the September peak of the previous 80-day cycle is a bearish warning that it would be inadvisable to ignore.
Gold gathered itself finally and mustered a rise towards a 40-day cycle peak . We might see this cycle peak at higher levels, but a resumption of the downwards move is inevitable.
30 Year US Bonds
Bonds decided not to wait, and this week burst through the 20-week FLD that we have been watching. Not only did they cross the FLD, they also fulfilled the target generated by that cross. This move makes the approaching peak more likely to be of 40-day magnitude than the 20-day peak we were expecting as shown in this analysis:
Crude Oil also had a volatile week, and here too we are expecting the trough of the 20-week cycle, although this trough is not overdue because the 40-week cycle trough occurred later in oil than it did in the stock markets. This longer term picture shows the developing bearish shape of the current 18-month cycle, which is also expected to form its next trough early next year.
US Dollar Index
The US Dollar is in the process of forming a peak, and is expected to come down to form an 80-day cycle trough in the next two weeks or so. The 80-day cycle that has played out since the trough of 14 September 2012 is very bullish in shape, but I am reluctant to declare that trough as being of 54-month magnitude (as discussed recently) just yet. Here is the more conservative analysis:
If the next 80-day cycle also develops with a bullish shape then it will be time to stop being conservative and consider the much more bullish option for the dollar.
If there were two weeks of this year that I would choose as the most difficult weeks to trade I would choose the last two. A natural disaster followed by a presidential election … it must surely get easier from here! I think it will, although easier doesn’t necessarily mean bullish!
Have a good week, and profitable trading.