Cycles land on crash date
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, 08-30-2013 at 01:08 AM (4491 Views)
For the short term, a rebound is very possible at this juncture in the market. SPX has dropped nearly 5 % from a 1709.67 high, early in the month to 1627.47 on Wednesday of this week. Will the fall continue or is there a chance of a rebound? There are many indices and factors one could look at, but I examine cycles in this blog. Notice on the SPX chart below the prominent cycles from April of this year. We have a 37 and 46 day cycle that combine to form a larger 83 day cycle traversing late April to late June. Notice that the larger cycle is right translated; meaning that the 46 day cycle is longer than the 37 day cycle by 9 days or 25% longer time length. The current cycle that started in late June appears to have finished in the SPX 1630 area this week, with the big red candlestick, after 45 days. We might conclude that this current larger cycle is left translated, meaning the next cycle will be shorter and needing only about 36 days (+/- 3 days) going forward to intersect the next low. This analysis assumes that the former 83 day cycle is symmetrical to the current cycle, and often they are very close from what I have observed in my personal chart work. Looking at my calendar and counting the days, I land on Monday October 21. Remember that Black Monday was October 19, 1987, when the stock markets around the world came undone and crashed, and the DJIA dropped 508 points! I personally knew someone who lost 300k in the matter of a few hours. Is this a lurking Black Swan? I don’t know, but it appears to be an interesting coincidence nevertheless.So reviewing the current larger 83 day cycle; it appears likely that a rebound is in order before returning to the dominant trend down. From the SPX 1710 top the market slid an average of 4.9 points/day for 17 days for a total of 83 points. We will call this wave one that unfolded in five further waves. Fibonacci retracements of 0.382 to 0.618 projects the market may rise to between SPX 1658 and 1678, perhaps taking up to 10-13 days. We will call this move wave 2; an ABC move. This happens to be in a pivot area and significant resistance. The returning downtrend would be projected to be greater than wave one or perhaps 1.382 times wave 1. This is because in Elliot wave theory, if one wave is shorter the other must extend. This would project to SPX 1543-1563. However, wave three could extend to a greater or lesser degree, so long as it is longer than wave 1. Therefore the crash theory is not totally off the table, or at least returning weakness. Thanks for reading.
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