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April 12, 2016

A Quick Peek at Cycles

A long time has passed since this blog has carried cycle musings, and as recorded in my last post, my market approach has changed significantly over that time. Apart from the fact that cycles are now just another technique rather than a methodology, I also put much less emphasis on daily cycles, preferring the weeklies as a way of developing a macro bias. Daily cycle counts have become too erratic to be considered dependable. Take a gander at the recent daily cycle action in the SPX as an example:

The SPX weekly view is considerably more tidy:

This weekly chart speaks volumes. Most pertinently, we can see that the yearly cycle low of last August has been violated. Forget all the nonsense about a 20% decline defining a bear market... a failed yearly cycle is the hallmark of a bear in cycle analysis. We can now expect weekly cycle to form as left-translated and fail until the bear has run its course.

Left-translated weekly cycles also tend to peak below the upper TrendBand, minor crossovers excused, of course. As you can see, price is now testing the UpperBand. So this weekly view puts the next down leg of a bear market squarely in the cross hairs. A move above the Week 10 high of the previous cycle would confound this interpretation, but until stopped out up there, I will carry a short position on SPX.

Gold is beginning to shine again as price has moved resolutely above both the UpperBand and 80WMA for the first time since the bear began.

Typically, a RT cycle will decline beneath the UpperBand as a cycle low is formed. Gold also has plenty of time to stretch lower and still form a cycle low within the normal 18 to 24-week span. However, a break above the Week 14 high will convince me a new cycle is in place.

Readers of the old newsletter may remember that when a RT cycle forms a low above the UpperBand, a parabolic move usually ensues. However, just as bulls should be cautious of another drop into a weekly cycle low, they should also temper their enthusiasm over a potential runaway move. After all, gold is moving out of a multi-year low. Our TrendBands just have not had time to bend higher and catch up with price. Down the road when we see the Bands trending higher for several cycles, I will be prepared to aggressively buy a cycle low above the UpperBand.

I do not currently hold a cycle play on gold, but I have initiated positions in mining shares, including an old favorite, Silver Wheaton. I have also purchased some long-term positions in the energy space, including CVX and PSX. I'll be back another day with an oil cycle view and an update on gold and equities.


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