Feb 212012

A lot of my research over the years has been on the existence of cycles in the market-  Another word for this is seasonals- Many seasonals exist in many patterns and time-frames- this article covers cycles that are found in an annual time frame:

What I do it take the S&P 500 component stocks for today's date and look for long cycles of a minimum length (in calendar days) and a minimum average and median return of 1%.

So what this gives us is a historical seasonal breadth for the current time-  This is very powerful as when many component cycles line up- it is significant.  Also, we are currently playing with multi-month highs in the S&P.  My analysis shows if we do not have a bit of a pullback in here at current levels, it will weaken the bull market we are in as the cycle becomes over extended (too long).

When cycles become longer, it corresponds to lower volatility and a trending market.  When they become shorter, it corresponds with chop/consolidation and down markets.  Of course, when cycles become too long, they lose strength.  When they become too short and/or random, they can result in break-outs.  This phenomena occurs on any time-frame and is one of the most powerful market analysis techniques I know.

Here is what I am seeing right now:

1) Over the next two weeks, one stock meet this requirement (symbol FTI)

2) Over 3 weeks, Zero

3) 4 Weeks, 3 stocks

4) 5 weeks, 10 stocks

5) 6 weeks, 38

6) with a decline following that.

Much of what drives the current market is Apple since the S&P 500 is capitalization weighted.  A very substantial portion of the recent rise in the S&P 500 is due to Apple and if it had been put on the DOW index, it would currently be over 15,000 (source= this weeks Barron's).  There is some food for thought.

Some other food for thought centers around the idea that today's high is exactly the vertical distance off the last major low (as shown in the image below):




 Leave a Reply

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

+ 2 = four

Commodity Futures Trading and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.