TL;DR

Bearish follow through this past week confirming the weekly cycle decline has started. That said, we would expect a lower high on the weekly chart soon given the extent of the decline so pressing shorts is unwise without additional bearish signals.

Overview

We now have very strong evidence that the weekly cycle decline started on August 15. At the same time, we’re very late in a daily cycle so we would expect to get a daily cycle low and a rally that would last at least a few days even if we’re going to get a left-translated daily cycle that has an early DCH. If one is inclined to be aggressive, that DCH would present a good short opportunity.

Bearish Reversal Following Jobs Report

On Friday (9/2) we had the monthly jobs report at 8:30AM EST so we expected a lot of volatility. This played out in the futures since the market doesn’t open until an hour after the report is released but we will focus on the reaction in the SPX index itself which was basically the same albeit at a different time. More detailed analysis in this video as well.

Given the volatility I’ll discuss the hourly chart briefly here as an example of multi-time frame analysis as all these patterns we discuss play out on all time frames. In this case, I want to highlight the bearish swing high that formed on the hourly chart once SPX traded below 4001.75.

You can can see in the image below we had a green hammer candle for the first hour of trading as the market digested the numbers from the jobs report and the implications for Fed policy. We made another higher high with the next candle but there wasn’t much follow through as you can tell from the sheer size of the candle. Very small range so basically consolidation for that hour and then you have the massive red candle that creates the swing high and then follow through the remaining hour.

This is the anatomy of a sell of on all time frames. Zooming in here to the hourly is helpful to see how the market digests a big number and how you can use clear levels instead of emotion to guide your decisions.

The Daily Cycle

SPX gapped up at the open on Friday and in the process created a bullish daily swing low. In real-time this looked like a daily cycle low in the making as we were getting a daily swing low. Instead we had a bearish reversal as described above but interestingly, we did not make a new low below Thursday’s low (3903.65). We had a late day breakdown that came within a few dollars of this level and then reversed before the close. Given that, you can see from the chart below it is either day 53 and the daily cycle continues which means more downside next week, or we could get a violent bullish reversal early in the week to reclaim that bullish swing low.

Time will tell which scenario plays out but either way, at some point we should get a short term rally as we print a DCL. That doesn’t mean it has to happen next week but it’s a scenario that’s important to be aware of. It’s the DCH of this next daily cycle that is likely to be a good short opportunity. Tuesday trading will give us more clarity about the daily cycle count but the more important point is have strong evidence that we are in the declining phase of the weekly cycle. This is not a time you want to be long.

• Current Count: Day 53

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

• Current DCH: Day 40

The Weekly Cycle

This past week was week 11 and now the second week of the weekly cycle decline. As mentioned in previous reports, weekly cycles tend to be at least 20 weeks long so that leaves with the prospect of a multi-week decline from here. At the same time, you can see on the weekly chart we are extended to the downside and in need of a corrective bounce. To be clear, when I say a “corrective bounce” I mean a short term rally that ends in a lower high. This is exactly what we would expect the next daily cycle to look like. We get our daily swing low and then we get a rally that lasts a few days but then begins to roll over as the weekly cycle decline continues. This is what I mean when I say the next DCH may present the ideal short opportunity. When thinking about when that might come there are a few things to consider.

The next 2 big catalysts are the CPI release on 9/13 and the FOMC press conference on 9/21 following the September meeting where everyone is expecting another 75 bps raise. I suspect these events will serve as important turning points so watching the price action going into the event will be key. For instance, if the market is rallying into the CPI print, that increases the odds the event could serve as a catalyst for a DCH for instance. Just remember that it’s all about what price action does as opposed to the specifics of the event. Price action will tell you how market participants are reacting to the event which is actually more important than knowing the details of what was announced.

The 4100 area as marked on the chart below will be important on any rally attempt. This is what started the waterfall decline and structurally get’s us in striking distance of reclaiming the weekly swing high.

• Current Week: 11

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

• Current ICH: Week 9 (8/15)

The Long Term (3 Year) Cycle

Last week the August monthly candle closed and as you can see from the chart below it has a huge upper wick and it’s red. You should also notice we are below the low from August already which means we are making lower lows on the monthly chart. This is more bearish evidence and the next sign we would look for is a lower high on the monthly chart. As mentioned above, that lower high we are expecting on the weekly would be the same lower high that would show up on the monthly. This is how a downtrend works on multiple time frames.

In terms of cycles, this increases the chances that June was not the long term cycle low and we are in month 30 now. We will need to see further bearish follow through on the daily and weekly charts to have more confidence in a longer term downtrend resuming so these all become pieces of the same puzzle to understand just how weak the market really is. If it’s as bearish as it seems, that could mean we don’t get the final long term cycle low until late Q1 2023.

Conclusion

More strong evidence that the weekly cycle decline has started yet a bounce may be imminent given how late we are in the daily cycle. As I wrote last week, we are early in the weekly cycle decline so there’s no rush to go short as we would expect a multi-week decline from here.

TL;DR

Bearish follow through this past week confirming the weekly cycle decline has started. That said, we would expect a lower high on the weekly chart soon given the extent of the decline so pressing shorts is unwise without additional bearish signals.

Overview

We now have very strong evidence that the weekly cycle decline started on August 15. At the same time, we’re very late in a daily cycle so we would expect to get a daily cycle low and a rally that would last at least a few days even if we’re going to get a left-translated daily cycle that has an early DCH. If one is inclined to be aggressive, that DCH would present a good short opportunity.

Bearish Reversal Following Jobs Report

On Friday (9/2) we had the monthly jobs report at 8:30AM EST so we expected a lot of volatility. This played out in the futures since the market doesn’t open until an hour after the report is released but we will focus on the reaction in the SPX index itself which was basically the same albeit at a different time. More detailed analysis in this video as well.

Given the volatility I’ll discuss the hourly chart briefly here as an example of multi-time frame analysis as all these patterns we discuss play out on all time frames. In this case, I want to highlight the bearish swing high that formed on the hourly chart once SPX traded below 4001.75.

You can can see in the image below we had a green hammer candle for the first hour of trading as the market digested the numbers from the jobs report and the implications for Fed policy. We made another higher high with the next candle but there wasn’t much follow through as you can tell from the sheer size of the candle. Very small range so basically consolidation for that hour and then you have the massive red candle that creates the swing high and then follow through the remaining hour.

This is the anatomy of a sell of on all time frames. Zooming in here to the hourly is helpful to see how the market digests a big number and how you can use clear levels instead of emotion to guide your decisions.

The Daily Cycle

SPX gapped up at the open on Friday and in the process created a bullish daily swing low. In real-time this looked like a daily cycle low in the making as we were getting a daily swing low. Instead we had a bearish reversal as described above but interestingly, we did not make a new low below Thursday’s low (3903.65). We had a late day breakdown that came within a few dollars of this level and then reversed before the close. Given that, you can see from the chart below it is either day 53 and the daily cycle continues which means more downside next week, or we could get a violent bullish reversal early in the week to reclaim that bullish swing low.

Time will tell which scenario plays out but either way, at some point we should get a short term rally as we print a DCL. That doesn’t mean it has to happen next week but it’s a scenario that’s important to be aware of. It’s the DCH of this next daily cycle that is likely to be a good short opportunity. Tuesday trading will give us more clarity about the daily cycle count but the more important point is have strong evidence that we are in the declining phase of the weekly cycle. This is not a time you want to be long.

• Current Count: Day 53

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

• Current DCH: Day 40

The Weekly Cycle

This past week was week 11 and now the second week of the weekly cycle decline. As mentioned in previous reports, weekly cycles tend to be at least 20 weeks long so that leaves with the prospect of a multi-week decline from here. At the same time, you can see on the weekly chart we are extended to the downside and in need of a corrective bounce. To be clear, when I say a “corrective bounce” I mean a short term rally that ends in a lower high. This is exactly what we would expect the next daily cycle to look like. We get our daily swing low and then we get a rally that lasts a few days but then begins to roll over as the weekly cycle decline continues. This is what I mean when I say the next DCH may present the ideal short opportunity. When thinking about when that might come there are a few things to consider.

The next 2 big catalysts are the CPI release on 9/13 and the FOMC press conference on 9/21 following the September meeting where everyone is expecting another 75 bps raise. I suspect these events will serve as important turning points so watching the price action going into the event will be key. For instance, if the market is rallying into the CPI print, that increases the odds the event could serve as a catalyst for a DCH for instance. Just remember that it’s all about what price action does as opposed to the specifics of the event. Price action will tell you how market participants are reacting to the event which is actually more important than knowing the details of what was announced.

The 4100 area as marked on the chart below will be important on any rally attempt. This is what started the waterfall decline and structurally get’s us in striking distance of reclaiming the weekly swing high.

• Current Week: 11

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

• Current ICH: Week 9 (8/15)

The Long Term (3 Year) Cycle

Last week the August monthly candle closed and as you can see from the chart below it has a huge upper wick and it’s red. You should also notice we are below the low from August already which means we are making lower lows on the monthly chart. This is more bearish evidence and the next sign we would look for is a lower high on the monthly chart. As mentioned above, that lower high we are expecting on the weekly would be the same lower high that would show up on the monthly. This is how a downtrend works on multiple time frames.

In terms of cycles, this increases the chances that June was not the long term cycle low and we are in month 30 now. We will need to see further bearish follow through on the daily and weekly charts to have more confidence in a longer term downtrend resuming so these all become pieces of the same puzzle to understand just how weak the market really is. If it’s as bearish as it seems, that could mean we don’t get the final long term cycle low until late Q1 2023.

Conclusion

More strong evidence that the weekly cycle decline has started yet a bounce may be imminent given how late we are in the daily cycle. As I wrote last week, we are early in the weekly cycle decline so there’s no rush to go short as we would expect a multi-week decline from here.