TL;DR

The big reversal we had on CPI day on Oct 13 turned out to be the DCL and likely also the ICL. This means we could rally for a few weeks from here but that doesn’t mean the long term downtrend is over. For that we will need a monthly swing low.

The Daily Cycle

As of Friday the daily cycle count is day 6 after the DCL on day 27 (Oct 13). Friday was a bullish day following some news from the Wall Street Journal that the Fed may consider pausing rate hikes as of December. In terms of price action, Friday was a bullish outside candle as price dipped below the previous days low (3656.44) to make a new low but then went on to make a new high above 3736. Outside candles are one of the most important concepts in price action.

If you use a muti-time frame approach as I do, you are able to spot these outside candles on many different time frames giving very clear trade entries and exits. Often times an outside candle on a lower time frame will eventually trigger an outside candle on a higher time frame so it can be an early warning signal of sorts. Given this price action and the narrative forming around a Fed pivot you could see a world where we could even rally to 3900 from here even if we’re going to get another lower high as I suspect. This bullish move on Friday have us a clear new high on the weekly chart which has big implications for the next several weeks.

• Current Count: Day 6

• Previous Daily Cycle Low: Day 27 (10/13/22)

• Current DCH: TBD

The Weekly Cycle

At this point it appears week 17 was the ICL and that makes this most recent week the first week of a new weekly cycle. We closed with a nice clean weekly swing low because of the bullish action on Friday. The other thing to consider are how other assets are trending including the US Dollar Index which is due for a decline into an ICL as discussed in this video. That decline into an ICL would be the perfect environment for risk assets like stocks to rally even if it’s going to end with a left translated weekly cycle. Which is to say, the declining phase of the US Dollar Index weekly cycle could coincide with the advancing phase of the weekly cycle for stocks. They don’t have to match week for week by any means but it makes sense they would trend in opposite directions.

If we start to think about what this weekly cycle will look like we can analyze a few scenarios. For starters, we’ll assume a weekly cycle that’s about 20 weeks long. This is a very rough estimate to give us a place to start. The weekly cycle before this last one was 16 weeks and it appears we just had a weekly cycle of 17 weeks. Those are both very short weekly cycle lengths based on what we have seen historically. So it’s possible this next cycle will also be less than 20 weeks so we will remain flexible as always and let the price action guide as as opposed assuming things will fall into neat timing bands based on past cycles.

If our cycle is about 20 weeks long and we assume it will be left translated based on the downtrend on the monthly chart that would give us a top by Dec 19. This is by no means a forecast or projection but instead a really rough scenario. If we get a cycle that is about 20 weeks long and is going to be left translated, it needs to top before Dec 19. That gives us something to watch for and we will continue to adjust on the fly with the Fed meeting on 11/2 being a significant pivot point. In a worse case scenario, we could make a new high on the week of 10/31 going into the Fed announcement on 11/2 and that high on week 3 becomes our ICH as we decline into an ICL. That would be an extreme bear reaction but it’s also a scenario to consider similar to the ICH before week 10 scenario.

• Current Week: 1

• Previous Intermediate/Weekly Cycle Low: Week 17 (10/13/22)

• Current ICH: TBD

The Long Term (3 Year) Cycle

In last week’s update we talked about how we were “meaningfully below the low from 2021”. We are now back above that level (3662.71) which becomes an important zone to watch on any pullbacks going into the end of the year. The monthly candle is green now and setting up for a monthly swing low since we made a new low and have now gone green. We have just 6 trading left in the month so we can now start thinking about how the November candle might open. This starts to really give us the blueprint for how the year will close out. If we assume we are starting week 2 of a new weekly cycle next week, we should be vigilant for any bearish signals which would culminate in a weekly swing high and signal the beginning of the weekly cycle decline which may show up on the monthly chart.

We know we are only on day 6 of a new daily cycle and will be starting week 2 of a new weekly cycle. That gives the market plenty of time to rally theoretically but given we are in a massive downtrend on higher time frames, it’s important to be cautious in my opinion. Weekly cycles can be very left translated and with the Fed meeting coming on week 3 of the weekly cycle, it does set us up for a possible ICH and very long decline that will cascade onto the monthly chart quickly. Interesting few weeks coming up for sure.

• Current Month: 31

• Current Long Term Cycle High (LTH): Month 22 (Jan. 2022)

• Approximate Cycle Low Timing: March 2023

Conclusion

As with every downtrend, there are bounces along the way that lead to lower highs. This is likely one of those bounces but the rally could last a few weeks so it’s tradable on the long side if you’re nimble.

TL;DR

The big reversal we had on CPI day on Oct 13 turned out to be the DCL and likely also the ICL. This means we could rally for a few weeks from here but that doesn’t mean the long term downtrend is over. For that we will need a monthly swing low.

The Daily Cycle

As of Friday the daily cycle count is day 6 after the DCL on day 27 (Oct 13). Friday was a bullish day following some news from the Wall Street Journal that the Fed may consider pausing rate hikes as of December. In terms of price action, Friday was a bullish outside candle as price dipped below the previous days low (3656.44) to make a new low but then went on to make a new high above 3736. Outside candles are one of the most important concepts in price action.

If you use a muti-time frame approach as I do, you are able to spot these outside candles on many different time frames giving very clear trade entries and exits. Often times an outside candle on a lower time frame will eventually trigger an outside candle on a higher time frame so it can be an early warning signal of sorts. Given this price action and the narrative forming around a Fed pivot you could see a world where we could even rally to 3900 from here even if we’re going to get another lower high as I suspect. This bullish move on Friday have us a clear new high on the weekly chart which has big implications for the next several weeks.

• Current Count: Day 6

• Previous Daily Cycle Low: Day 27 (10/13/22)

• Current DCH: TBD

The Weekly Cycle

At this point it appears week 17 was the ICL and that makes this most recent week the first week of a new weekly cycle. We closed with a nice clean weekly swing low because of the bullish action on Friday. The other thing to consider are how other assets are trending including the US Dollar Index which is due for a decline into an ICL as discussed in this video. That decline into an ICL would be the perfect environment for risk assets like stocks to rally even if it’s going to end with a left translated weekly cycle. Which is to say, the declining phase of the US Dollar Index weekly cycle could coincide with the advancing phase of the weekly cycle for stocks. They don’t have to match week for week by any means but it makes sense they would trend in opposite directions.

If we start to think about what this weekly cycle will look like we can analyze a few scenarios. For starters, we’ll assume a weekly cycle that’s about 20 weeks long. This is a very rough estimate to give us a place to start. The weekly cycle before this last one was 16 weeks and it appears we just had a weekly cycle of 17 weeks. Those are both very short weekly cycle lengths based on what we have seen historically. So it’s possible this next cycle will also be less than 20 weeks so we will remain flexible as always and let the price action guide as as opposed assuming things will fall into neat timing bands based on past cycles.

If our cycle is about 20 weeks long and we assume it will be left translated based on the downtrend on the monthly chart that would give us a top by Dec 19. This is by no means a forecast or projection but instead a really rough scenario. If we get a cycle that is about 20 weeks long and is going to be left translated, it needs to top before Dec 19. That gives us something to watch for and we will continue to adjust on the fly with the Fed meeting on 11/2 being a significant pivot point. In a worse case scenario, we could make a new high on the week of 10/31 going into the Fed announcement on 11/2 and that high on week 3 becomes our ICH as we decline into an ICL. That would be an extreme bear reaction but it’s also a scenario to consider similar to the ICH before week 10 scenario.

• Current Week: 1

• Previous Intermediate/Weekly Cycle Low: Week 17 (10/13/22)

• Current ICH: TBD

The Long Term (3 Year) Cycle

In last week’s update we talked about how we were “meaningfully below the low from 2021”. We are now back above that level (3662.71) which becomes an important zone to watch on any pullbacks going into the end of the year. The monthly candle is green now and setting up for a monthly swing low since we made a new low and have now gone green. We have just 6 trading left in the month so we can now start thinking about how the November candle might open. This starts to really give us the blueprint for how the year will close out. If we assume we are starting week 2 of a new weekly cycle next week, we should be vigilant for any bearish signals which would culminate in a weekly swing high and signal the beginning of the weekly cycle decline which may show up on the monthly chart.

We know we are only on day 6 of a new daily cycle and will be starting week 2 of a new weekly cycle. That gives the market plenty of time to rally theoretically but given we are in a massive downtrend on higher time frames, it’s important to be cautious in my opinion. Weekly cycles can be very left translated and with the Fed meeting coming on week 3 of the weekly cycle, it does set us up for a possible ICH and very long decline that will cascade onto the monthly chart quickly. Interesting few weeks coming up for sure.

• Current Month: 31

• Current Long Term Cycle High (LTH): Month 22 (Jan. 2022)

• Approximate Cycle Low Timing: March 2023

Conclusion

As with every downtrend, there are bounces along the way that lead to lower highs. This is likely one of those bounces but the rally could last a few weeks so it’s tradable on the long side if you’re nimble.