Trade the Cycles

Monday, October 06, 2008

Major Cycle Lows For The Major Averages And Many Sectors Appear To/Might Have Occurred Today

Major cycle lows for the major averages and many sectors appear to/might have (obviously questionable) occurred today 10-6-08, see SPX (S & P 500) at http://stockcharts.com/charts/gallery.html?%24spx, see HUI at http://stockcharts.com/charts/gallery.html?%24hui, see XOI at http://stockcharts.com/charts/gallery.html?%24xoi, see Walmart (WMT) at http://stockcharts.com/charts/gallery.html?wmt, see NEM at http://stockcharts.com/charts/gallery.html?nem, see XOM at http://stockcharts.com/charts/gallery.html?xom. Note the very large very bullish inverse spike on today 10-6-08's candle, on all of the charts above.

Obviously, a major buy signal must occur, an index/commodity/stock etc has to hit a 5% follow through (after breaking the major downcycle trendline) major buy signal before the Trade the Cycles system indicates that a major cycle low has very likely occurred.

The major averages might have put in a Cyclical Bear Market cycle low today 10-6-08 (difficult to believe I know, but, it's within a Secular 15 to 20 year bear market), along with GDX/HUI/XAU (gold lags and silver lags gold). XOI (AMEX Oil & Gas) appears to have put in a Wave A major intermediate term cycle (since late May) low today, which is Wave A down of a Cyclical Bear Market.

The lead indicators jive with a major cycle low possibly occurring today.

The broad market Walmart (WMT) Lead Indicator was +0.79% versus SPX (S & P 500) today 10-6, was an extremely bullish (which was correctly very short term bearish, pointing to weakness today) +2.85% on 10-3, was an extremely bullish (was very short term bearish) +2.67% on 10-2.

The gold sector NEM Lead Indicator was extremely bullish each of the past three sessions, at +2.57% versus the XAU today/on 10-6, +3.09% on 10-3, +4.06% on 10-2.

The oil & gas sector XOM (Exxon Mobil) Lead Indicator was an extremely bullish +2.68% today/on 10-6, was +0.44% on 10-3, was an extremely bullish +5.84% on 10-2.

I'll be looking to trade DIG (Ultra Oil & Gas ProShares, http://stockcharts.com/charts/gallery.html?dig) and/or AEM (http://stockcharts.com/charts/gallery.html?aem) long tomorrow. XOM should fill today's upside gap at 77.94 tomorrow before trading DIG.

.......http://www.JoeFRocks.com/


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posted by Joe Ferrazzano at 1:36 PM

6 Comments:

  • Would you mind telling me how you learned this wave/cycle theory? Is this elliot waves which you are using? Thanks

    By Blogger Unknown, at 8:12 PM  

  • Hi,

    An intermediate-term low may be in soon given we are over 20% below the 200-day MA.

    http://garyscommonsense.blogspot.com/2008/10/20-under-200.html

    In the last 2000-2002 bear market, such bear rallies reached at least the 65-day MA.

    Do you expect for SPX to at least regain the 50 or 60-day MA?

    If not, at what level (in SPX) would your exit your long positions and re-establish shorts?

    Appreciate your thoughts. Thank you.

    By Blogger Unknown, at 11:53 PM  

  • Steve Saville has an excellent article on Inflation and Money Supply.

    http://www.safehaven.com/article-11485.htm

    Trend Change Signaled

    In our 3rd October email alert we wrote: "The Fed expanded its balance sheet by $254B during the one-week period ending 1st October, which follows a $204B expansion during the preceding week. As a result, the Fed's balance sheet has grown by almost 50% within the space of just two weeks. This, we believe, is unprecedented."

    Last week's money creation by the Fed won't appear in broader money-supply data until the end of this week, but the week-before-last's expansion of the Fed's balance sheet has given the True Money Supply (TMS), our preferred monetary aggregate, a substantial boost. In fact, it has pushed the year-over-year (YOY) TMS growth rate from 3.75% to 7.0%, thus signaling a new major upward trend.

    We can never know for certain, in advance, which items and which markets will be the eventual main beneficiaries of an upward trend in money-supply growth, but we can make educated guesses. In general, inflation will exert the most upward pressure on the prices of items/investments that are relatively scarce and relatively under-valued.

    Value is always a matter of opinion and there are many smart people in the world who disagree with our assessment of relative value, but from our vantage point the broad stock market's high P/E ratio and low dividend yield disqualify it as a likely big winner from the coming inflation. The bond market also looks over-valued, as does the property market. Commodities are likely winners because in most cases their prices remain low in real terms and because the large nominal price gains of the past several years have not yet brought about large increases in supply, but industrial commodities such as oil and the base metals could languish for quite a while in response to the global growth slowdown. Gold, however, often benefits from illiquid financial markets and economic weakness due to its historical role as money. Furthermore, we think gold is cheap relative to most other commodities and most other investments.

    It could be 1-2 years before the new upward trend in money-supply growth begins to have a meaningful effect on commodities in general and 3-4 years before it begins to boost the prices of everyday items, but gold's reaction is likely to occur much sooner due to the anticipatory gold-buying of large speculators (some large speculators will appreciate the inevitable/eventual effects of the monetary inflation and take positions in gold in anticipation of these effects).

    By Blogger Unknown, at 4:46 AM  

  • Hi vickky,

    My original Trade the Cycles system uses the reliable Elliott Wave patterns and maps them to cycles of various timeframes (an Elliott Wave is either an upcycle or a downcycle), from very short term (hours/days), short term (days/weeks), monthly (4-7 weeks), minor intermediate term (2-3 months), major intermediate term (3-12 months), long term (1 to 2 years), Cyclical Bull/Bear Market (6 months to 7 years, yes, a bull/bear can be relatively brief), Secular Bull/Bear Market (8-20+ years).

    Gaps are very important also, since most gaps get filled and they often provide insight into when cycle highs/lows will occur.

    By Blogger Joe Ferrazzano, at 8:26 AM  

  • Thank you. One last question. So I am interested in learning Elliot wave theory. I am aware it will be a while before I can use my knowledge to trade.

    Do you have any suggestions on where I should start (any recomended books?)

    Thanks again

    By Blogger Unknown, at 9:05 PM  

  • Vickky,

    I simply use the Elliott Wave 12345 up down up down up pattern for upcycles and the Elliott Wave ABC down up down pattern for downcycles. Wave 3s tend to be larger than Wave 1s. I'm not a student of Elliott Wave theory, though I might be in the future. I simply use the reliable Elliott Wave patterns.

    By Blogger Joe Ferrazzano, at 9:34 PM  

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