Wednesday, 15 September 2010

14:23 BST - SPX Update: Cycles from March 2000 high suggest a turn is close

Here's a chart of two cycles that start from the March 2000 high and which have clearly continued to influence the market, marking some signifcant turns, including the 6 March 2009 low and the April 2010 high (the red cycle also caught the October 2007 top):

SPX Daily: Cycles from March 2000 high - larger view:

The grey lines mark the larger cycle while the red lines mark the smaller cycle. Between them they've done a pretty accurate job of catching turning points, although I've marked with red boxes three occassions where a turn didn't occur on the grey cycle.

So, its not perfect, but using a good trading system, which includes stop losses, with these cycles would limit any losses at times when the cycles don't mark turns. Essentially, it boils down to waiting for price action that suggests a turn and not just trading on the basis of a move into a cycle line.

Here's a zoomed in look:

SPX Daily Cycles from March 2000 high:

You can see that the August lows came at a point where the grey and red cycles coincided.

We're now at a red cycle line, but no signal has been given by price action as yet. It may well be that we continue up or sideways (see, for example, the sideways moves into the grey cycle in early and late August, each of which were followed by big moves) into the next grey cycle line where a red cycle line is also located only a day apart. Those two lines come in on 22 and 23 September.

However, the daily chart showing the cycle I've been following from the April 2010 high  (see the last post on that here) suggested a turn due on 10 September. We're still within that time frame. Interestingly, that cycle's next date is 22 September.

So, timewise, there's reason to be on the look out for a turn. Looking at the elliott waves, there are reasons to be looking for a turn, even on the bullish counts (see yesterday's end of day update). On the 60 min technicals, there are reasons to be looking for a turn (see the divergences on the chart in this post from yesterday).

Its a good recipe for a turn. However, the missing ingredient is price - we just have to await price action that suggests a turn (and then assess the action to see how significant any turn may be - the cycles can't tell us that).