Stock-Market-Observations

• Short Term
• July 7, 2011 – Present
• Step 2 Down Underway 
  
• Action Status – Sold

After my post last night stating that the SP 500 futures were down 28 points, the futures reversed almost immediately and over the next 5 hours rallied 70 points (700 DJ Industrials points).  The rally was based on the belief that the FED was going to say something significant today and that belief turned in reality.

On FED announcements it’s not unusual to have some large oscillations and today was no exception.  Before the FED announcement the Dow was up about 200 points from yesterday’s close.  After the announcement the Dow fell about 400 points from the interim peak.  The FED announcement, which was notable in stating that interest rates would remain low through June 2013.  Previously the FED had said interest rates would stay low for an extended period of time.  Recently I had heard someone ask Bernanke what was an extended period of time.  Bernanke’s response was at least 2 or 3 months.  To me that’s not an extended period of time so today’s clarification was a big deal.  After the market calmed down and digested the news the market closed VERY strong ending up about 430 DJ Industrial points (4.0%) and the SP 500 was up 53 points (4.7%).  It was also a 90% up day.

It’s likely that we have ended the second step down, which began on July 21st (see chart).  I think that we will rally for at for awhile and then decline into the third step down.  The 3rd step should be a secondary bottom and may be lower or higher than the bottom made yesterday.  Upon the reversal from the third step down, I will likely issue a short term buy signal.

At the conclusion of the correction that began in February, the market should initiate large step 3 up.  If true, the upcoming buy point could be very significant.  Large step 3 up would mean “at least” a return to the May highs and likely higher.

The chart below shows the uptrend that began in July 2010 ended in February 2011.  This was followed by step 1 down ending in March 2011 and step 2 down ending in June 2011.  We are currently in step 3 down.  Step 3 is also breaking down into 3 steps.  Today we MAY have ended step 2 down of the third step (see chart).  If this labeling is correct, we should rally and then decline into the last step down, which will be step 3 in step 3.  If we are not in an extended wave count (5 steps down), the end of the correction is certainly in sight.  I am troubled a little as the cycles are predicting a significant bottom in October of this year.  If that’s correct, it likely means that we would have an extended wave count (meaning 5 steps down instead of 3).  The factor that argues against a 5 step down is the EXTREME OVERSOLD condition that exists (deepest in years).   Regardless of this consequence I will initiate a buy signal at the end of the third step down.  All that can happen is I will be wrong and lose money.  Other than that, what’s to go wrong (???).

Be sure and click on the charts to enlarge them.

08-09-11 SP 500 DAILY BARS

Here is something a little different.  It shows the predicted cycles for the SP 500.  When the semi-circles touch bottom, that’s the end of a cycle.  As you can see there are several cycles that are bottoming presently and that’s good news.  If this is valid, it means that we are at or near the bottom from the standpoint of time.  Cycle theory says that longer term cycles have more relevance over shorter cycles.  So you want to look at the bigger semi-circles for relevance.

You can also see there is a significant cycle bottoming in December 2011.  Also there are cycles bottoming March to June 2012.  Again if this is valid, it means there will be a significant bottom of some type somewhere in that time frame.  I’ll have to remember to revisit this cycle chart at a later date.  This chart is constantly changing as it responds to the actual movements of the market.

08-09-11 short term cycles

The next chart is the same cycle predictions only it extends far out in time.  Looking out to late 2017 and early 2018, you can see there are some long term cycles that are bottoming in that area of time.  As I said previously the larger cycles (larger semi-circles) have more relevance over the shorter cycles.  The 2017-2018 cycles bottoms could be a validation of my prediction for the 2018 end of the last bear market.

08-09-11 long term cycles

All Rights Reserved  © ™

This entry was posted on August 9, 2011 at 7:50 PM and is filed under UPDATE. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site.