As the US markets and Euro bounced up this week I started preparing for the peak of the current 40-day cycle to form. The identification of peaks is not an exact science as I’ve mentioned here many times, and so I find myself in a similar situation to the one in August / September this year – waiting for the peak to reveal itself.
This will be the peak of the 40-day cycle of course, but it might also prove to be the peak of the 80-day cycle, and perhaps even the 20-week cycle if the markets fail to climb to higher peaks after the formation of the 40-day cycle trough, which is very possible given the bearish underlying trend as we approach the 18-month cycle trough expected early next year.
At times like this as we wait for a peak to form I find it useful to take a step back and consider the shape of the longer cycles.
The peak we are watching for might have formed in the S&P 500 this week. Here is the bigger picture:
As mentioned previously this second half of the M-shape is expected to be distorted to the downside.
The Nasdaq is looking a good deal more bearish than the S&P 500. Despite my bearish outlook into early next year it would be surprising to see the Nasdaq form its 20-week cycle peak at this low level, and so I do expect more of a bull move after the formation of the 40-day cycle trough.
The Euro had a very strong week. It is possible that the trough of Friday 7 December 2012 was an early 40-day cycle trough, but I suspect that we are seeing some fundamental interaction distorting the cyclic picture because of all the “good news” about the Euro. At any rate the M-shape is looking suitably bullish, following the 18-month cycle trough which formed in July.
Gold has been falling from its 40-day cycle peak. The cycle shape here is expected to form a W because the analysis is inverted: peaks are synchronized in Gold, as opposed to troughs. We are very early in the 40-week cycle, and so there is a good deal of bearish W-shape activity ahead of us.
30 Year US Bonds
Bonds most probably formed their 20-week cycle peak as discussed last week on Friday 16 November 2012, in unison with many other markets, which implies that we are now looking for a 40-day cycle trough and a rise up to the 40-day cycle peak. I am showing here the alternate which is that the 20-week cycle peak has not yet formed, and that the move up following the 40-day cycle trough will be stronger as Bonds move into that peak. If Bonds don’t muster a strong move soon then this alternate will prove to be invalid.
Oil has been laboring under a strong bearish underlying trend, and is exhibiting a very bearish M-shape. It is probable that the 40-day cycle trough formed this week. We could see a higher peak form in the current 20-week cycle, but the bear might prove too strong.
US Dollar Index
The Dollar had a very bad week, and we might soon have to downgrade the trough of mid-September back to the 20-week magnitude we initially phased it as. This would imply that the Dollar will be falling into a deeper 54-month cycle trough early next year.
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Have a good week, and profitable trading!