Sunday, April 5, 2009

SPX Cycles for 4/3/09

The markets continue to grind higher but are overbought enough so we should expect a sharp one or two day correction at any time. I do not think the correction will be nasty and deep like last January, more of a scare to ease out the nervous longs and trap the overly aggressive shorts.

The 10% Index component of the MCO again went above the +500 positive threshold. It did this in January and the nastiness of the following correction surprised me. However, I don't think this will be the case now, primarily because the 200 day Bullish Percent Index has finally moved up off the floor where it has been flatlined since October - thats nearly a full six months and about as bearish as it gets.

The fact that this 200 day Bullish Percent indicator has turned up means that
a. the 200 day averages have declined down closer to the recent price levels and
b. that the recent price movement has turned up enough for some stocks to finally move above their 200 day averages.

In the worst periods of this bear market, 95% of the NYSE stocks were below their 200 day moving averages. This is extraordinarily bearish behavior which seldom ever occurs and I seriously doubt if we will see this happen again anytime soon.

Finally, I have updated the cycle chart for the SPX. During the worst part of the recent decline, the short term cycle amplitudes were so high they overwhelmed the longer term periods making it hard to see and set the cycle intervals. Things have settled down a bit now so I updated the chart. (note TD = trading days)
55 TD & 27.5 TD (1/2 span) - This is the most consistent trading cycle going back a few years
71 TD & 30.5 TD (1/2 span) - Again reasonably consistent over the last few years
20.33 TD - Short term trading period - a slightly elastic mix of 8-9-10 TD short term cycles adding up to something between 18-21 TD and averaging out around 20 TD's

On days with a vertical cycle bar/line I look for a trend change or an acceleration of the move. Works sometimes, sometimes not. Right now it's worth paying close attention, a lot of things are adding up to indicate jerky action in the next few days.

The McClellan Oscillator for the week ending 4/03/09
Click to enlarge

The NYSE Bullish Percent Indexes
Click to enlarge

The SPX daily chart with cycles
Click to enlarge

The SPX daily chart with more stuff
Click to enlarge

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