TL;DR

It’s right to be long here but a pullback is imminent based on a confluence of market structure and timing. That pullback must hold a higher low to confirm the current uptrend is intact.

Overview

The second week of August was quite eventful following the consolidation week. As we were expecting, we chopped around Monday and Tuesday and then the CPI release Wednesday (8/10) morning was the catalyst for a powerful rally above the June highs. The next big picture target is the 4600 area as outlined in this video but there is a lot of overhead supply to get through.

The Daily Cycle

Friday was day 38 of the current daily cycle and also a new high on the daily chart so we are still on the lookout for the DCH. The price action after the CPI release was decisive Since we are so late in the daily cycle we could get the DCH any day now but it’s impossible to know in advance. What we will watch for is a swing high on the hourly chart which would trigger a daily swing high if there is enough bearish follow through. In terms of context, going back to the beginning of 2021 the longest daily cycle advance was 45 days so we could rally for quite a bit more and still be within historical norms. When the daily cycle decline begins we will watch to see if it can hold a higher low which will be a signal that this weekly cycle will be right translated.

• Current Count: Day 38

• Previous Daily Cycle Low: Day 54 (5/12/22)

• Current DCH: Not Printed Yet (NPY)

The Weekly Cycle

Once we had the CPI release the market exploded higher here on week 8 of the weekly cycle for the 4th green week in a row. As noted above, we are expecting the daily cycle decline to begin soon and what it does to the weekly chart will be an important signal. Specifically, we would want to avoid a weekly swing high which would mean staying above the high from this previous week at 4112. We know we have to get a pullback soon based on how trends develop. We’ve had a series of higher highs and now we would expect a higher low before the trend can resume. The key will be remaining above previous weekly lows or a relatively quick recapture of the level forming a false breakdown pattern. For instance, we may form a swing high intraweek at some point over the next few weeks that does not close the week below that level giving us a false breakdown on a lower time frame.

In terms of cycle length, last cycle was extremely short at 16 weeks so we would expect this cycle will be longer to balance it out. Using that assumption we can expect a weekly cycle of around 25 weeks if not longer. If we also assume this cycle is going to be right translated that would suggest we won’t get the top until at least week 13 with a final low in early December at the earliest. This is all speculation for now until we start seeing some price action signals in real time but the important thing is we can prepare ourselves for a long trending move and try to benefit as it unfolds.

• Current Week: 8

• Previous Intermediate/Weekly Cycle Low: Week 16 (6/17/22)

• Current ICH: Not Printed Yet (NPY)

The Long Term (3 Year) Cycle

Last week I noted, “…we really need to get through the June highs around 4178 to start seeing upside on the monthly time frame which would be a very bullish signal.” Well we got that and much more following the bullish reaction to the CPI release on 8/10

We have a very clear uptrend on the daily chart since the last DCL. We also have a clear uptrend on the weekly chart since that same DCL which was also an ICL. The last step is establishing an uptrend on the monthly chart and my making a bullish monthly swing low we have started that process. To be clear, we need to start to see higher highs and higher lows on the monthly chart and with this “higher high” above the previous month’s high, this is a very important first step. This is how a bottom forms. The lower time frames reverse the downtrend and if they see follow through, they cause higher time frame downtrends to reverse.

The tough part is these signals take a long time to play out since you need confirmation from the monthly candle which looks incredibly bullish right now but we know there is a lot of month left to trade so how we close will be very important. What we want to avoid is a huge upper wick that would happen if we pullback hard for the rest of the month. Failing that, this sets us up to continue to develop the uptrend on the monthly chart which would eventually cascade higher to the quarterly chart.

Conclusion

For the last few weeks I have been saying: “We either have a multi-month bottom here or we have a short-term (next 3-4 weeks at most) rally that ends with a lower high…”. With the bullish response to the CPI release, we are getting evidence to support the idea we may have a multi-month low on our hands. In fact, it’s entirely possible we have made a long term cycle low as of June for SPX which would be much earlier than expected but you have to trade the price action, not your expectations. Many calls on Twitter declaring this is only a bear market rally or that we are headed to all time highs. The truth is it’s still unclear but we are definitely getting more signs that suggest a very important low may already be in. Will continue to watch this closely and report back here.

TL;DR

It’s right to be long here but a pullback is imminent based on a confluence of market structure and timing. That pullback must hold a higher low to confirm the current uptrend is intact.

Overview

The second week of August was quite eventful following the consolidation week. As we were expecting, we chopped around Monday and Tuesday and then the CPI release Wednesday (8/10) morning was the catalyst for a powerful rally above the June highs. The next big picture target is the 4600 area as outlined in this video but there is a lot of overhead supply to get through.

The Daily Cycle

Friday was day 38 of the current daily cycle and also a new high on the daily chart so we are still on the lookout for the DCH. The price action after the CPI release was decisive Since we are so late in the daily cycle we could get the DCH any day now but it’s impossible to know in advance. What we will watch for is a swing high on the hourly chart which would trigger a daily swing high if there is enough bearish follow through. In terms of context, going back to the beginning of 2021 the longest daily cycle advance was 45 days so we could rally for quite a bit more and still be within historical norms. When the daily cycle decline begins we will watch to see if it can hold a higher low which will be a signal that this weekly cycle will be right translated.

• Current Count: Day 38

• Previous Daily Cycle Low: Day 54 (5/12/22)

• Current DCH: Not Printed Yet (NPY)

The Weekly Cycle

Once we had the CPI release the market exploded higher here on week 8 of the weekly cycle for the 4th green week in a row. As noted above, we are expecting the daily cycle decline to begin soon and what it does to the weekly chart will be an important signal. Specifically, we would want to avoid a weekly swing high which would mean staying above the high from this previous week at 4112. We know we have to get a pullback soon based on how trends develop. We’ve had a series of higher highs and now we would expect a higher low before the trend can resume. The key will be remaining above previous weekly lows or a relatively quick recapture of the level forming a false breakdown pattern. For instance, we may form a swing high intraweek at some point over the next few weeks that does not close the week below that level giving us a false breakdown on a lower time frame.

In terms of cycle length, last cycle was extremely short at 16 weeks so we would expect this cycle will be longer to balance it out. Using that assumption we can expect a weekly cycle of around 25 weeks if not longer. If we also assume this cycle is going to be right translated that would suggest we won’t get the top until at least week 13 with a final low in early December at the earliest. This is all speculation for now until we start seeing some price action signals in real time but the important thing is we can prepare ourselves for a long trending move and try to benefit as it unfolds.

• Current Week: 8

• Previous Intermediate/Weekly Cycle Low: Week 16 (6/17/22)

• Current ICH: Not Printed Yet (NPY)

The Long Term (3 Year) Cycle

Last week I noted, “…we really need to get through the June highs around 4178 to start seeing upside on the monthly time frame which would be a very bullish signal.” Well we got that and much more following the bullish reaction to the CPI release on 8/10

We have a very clear uptrend on the daily chart since the last DCL. We also have a clear uptrend on the weekly chart since that same DCL which was also an ICL. The last step is establishing an uptrend on the monthly chart and my making a bullish monthly swing low we have started that process. To be clear, we need to start to see higher highs and higher lows on the monthly chart and with this “higher high” above the previous month’s high, this is a very important first step. This is how a bottom forms. The lower time frames reverse the downtrend and if they see follow through, they cause higher time frame downtrends to reverse.

The tough part is these signals take a long time to play out since you need confirmation from the monthly candle which looks incredibly bullish right now but we know there is a lot of month left to trade so how we close will be very important. What we want to avoid is a huge upper wick that would happen if we pullback hard for the rest of the month. Failing that, this sets us up to continue to develop the uptrend on the monthly chart which would eventually cascade higher to the quarterly chart.

Conclusion

For the last few weeks I have been saying: “We either have a multi-month bottom here or we have a short-term (next 3-4 weeks at most) rally that ends with a lower high…”. With the bullish response to the CPI release, we are getting evidence to support the idea we may have a multi-month low on our hands. In fact, it’s entirely possible we have made a long term cycle low as of June for SPX which would be much earlier than expected but you have to trade the price action, not your expectations. Many calls on Twitter declaring this is only a bear market rally or that we are headed to all time highs. The truth is it’s still unclear but we are definitely getting more signs that suggest a very important low may already be in. Will continue to watch this closely and report back here.