My three-year old son has been struggling this week with the fact that he would like to specify the “surprise” that he gets in his morning snack. I have tried explaining that if one knows what is coming, it can hardly be described as a surprise, but he remains unconvinced, and states cheerfully that he is looking forward to his “surprise” chocolate muffin.
The markets’ downward slide this week was similarly not a surprise because we have been expecting it. For me the surprise was the uncomfortable feeling of inevitability about the markets action. Even when you expect it, a downward slide is never a good thing to witness. I suspect that we are in for a good deal more downward movement over the months ahead.
Last week I warned that despite the bullish look to the current 20-day cycle, it could still resolve into a bearish cycle, and that is exactly what is happening. Cycles that look bullish but then turn bearish are the cruelest cycles in the market.
Price is headed down to the 80-day cycle trough, and that is the next cyclic event we are looking to. It is expected ideally in about 6-10 days, earlier than originally forecast.
The Euro also turned down this week, bolstering our confidence in the analysis that we have been tracking all year in this instrument. A small 20-day cycle trough is expected next, but the Euro is well on its way down to the 20-week cycle.
Since early March we have been watching the unfolding shape of the current 80-day cycle, which is now rising to form a peak, expected within the next two weeks. Gold is looking very tired, struggling to rise much at all, and thus far the 80-day cycle is taking on a very bearish shape.
30 Year US Bonds
Bonds continue to be the most tricky market to analyze because of the difficulty in identifying that 80-day cycle peak. It is possible that the 80-day cycle peak will turn out to be a straddled peak, occurring in late March. If this is the case then the next big cyclic event that we should expect is the formation of a 40-week cycle peak in late May or early June. Once again the cyclic picture in bonds confirms the bearish outlook for stocks.
I have been bearish Crude Oil for some time as you know, monitoring the progress towards the 40-week cycle trough expected in June, but this week’s strong downward slide was nevertheless a surprise. As I have mentioned before the surprise is often not in the direction of the move, but in the extent and speed of the move, which was certainly the case in oil this week.
This week’s strong move raises a possible alternate analysis as shown below. This is less likely in my opinion, but if price bounces back very strongly next week it would become a likely candidate. More likely is that we see a smaller bounce out of the 20-day cycle trough as implied by the analysis above.
US Dollar Index
The US Dollar did indeed bounce up on the 20-week FLD as I suggested it might last week. It bounced further than expected, and has just crossed the 80-day FLD, implying that the trough formed on Tuesday 1 May 2012 was an early trough of the 80-day cycle.
Below is a picture of the median line, with a slightly different analysis which fits better with the early 80-day cycle trough, although I am not yet absolutely convinced that trough has been formed. On Monday we should be able to say whehter it has or not with confidence.
That’s it for this week. I hope I haven’t spoilt too many surprises for you!