TL;DR

We got our daily cycle low on Sept 06 and then rallied almost 5% with three strong up days in a row to start the new daily cycle. Monday begins day 4 and we know the CPI release Tuesday morning will be the next big catalyst.

Overview

We are very early in a new daily cycle and the most important thing from here is determining if it’s going to be right or left translated. As is often the case, the character of the daily cycle will impact what happens on the higher time frames including the weekly cycle which is currently in decline. Yet if we break above certain levels, that will invalidate this bearish scenario. More on that below.

The Daily Cycle

Friday was day 3 and so far we’ve had very strong trend days which suggests we may get some cool off in the early part of the coming week. Especially as the market awaits the CPI release on Sept 13 at 8:30 AM EDT. So we could see chop starting with the ES futures opening Sunday (Sept 11) at 6 PM EDT. CPI day will be day 6 and I expect we will get a decisive reaction after some initial trapping. There is much to suggest that the number is going to show inflation slowing especially given the drop in gasoline prices. This sets the market up for a continuation higher for the rest of the week. As always, we will have to see what the price action does in real-time but that this is a plausible scenario based on where we are in the daily cycle, the market structure and the macro context.

The next catalyst on the horizon will come the following week with the FOMC meeting and press conference on Sept 21. One scenario to be ready for is that date serving as the DCH. You can imagine a run up following CPI and the FOMC announcement causes a swing high which begins the daily cycle decline. It will be day 13 by then which makes it a good candidate for a DCH as discussed in detail in this video

As far as the important levels to be aware of, we did gap up on Friday which means this area likely get’s revisited later in the daily cycle. The gap exists between 4022.94 and 4010.50. The most important completed pattern was on the weekly time frame: we closed as an outside bullish weekly candle by staying above 4062.99. That is a very bullish signal. As remind everyone often, a bullish outside candle is always a false breakdown on a lower time frame so it’s something to pay attention to.

• Current Count: Day 3

• Previous Daily Cycle Low: Day 25 (6/17/22)

• Current DCH: Not Printed Yet

The Weekly Cycle

This past week was week 12 and as mentioned above was a bullish outside candle. These patterns usually see continuation in the direction of the breakout though some chop/consolidation is to be expected to digest the most. The most important question is what this means for our thinking that the weekly cycle decline is underway. So far we remain well below the weekly swing high though that could change quickly next week.

The possibility remains that this daily cycle low could become a higher low on the weekly chart if we can make a new high above the week 9 high. If that is going to happen we would need to see some strong bullish follow through next week so we will have a very clear indication either way especially with CPI on Tuesday acting as a catalyst to bring price to a decision. We then have the FOMC meeting the following week so that will build on whatever pattern develops from next week.

As you can see from the weekly chart below, we are carving out that potential higher low and the next two weeks will make it clear if that’s what we’re getting. That will be a massive long signal because it will suggest a rally into Q4. For now we just continue to watch the price action including the monthly chart.

• Current Week: 12

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

• Current ICH: Week 9 (8/15)

The Long Term (3 Year) Cycle

Last week I wrote “…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 week we have a very different picture after a 5% rally of the daily cycle low.

The September candle is now green and most importantly, it’s made a lower low below the August candle as mentioned last week. When a candle makes a lower low and then goes green, this is a sign it may become a bullish outside candle. This is exactly the pattern that played out with the weekly candle. This is not a coincidence. It’s how price action works. Patterns on a lower time frame will form on a higher time frame if they see enough follow through in the direction of the trend. In this case the bullish outside weekly pattern is trying to follow through on the monthly time frame. That would take price back above 4325.28.

As I always say, this is a high probability pattern but nothing in the markets works 100% of the time so it doesn’t mean it will play out to completion the way it did on the weekly chart. That said, it’s important to be aware of the potential scenario. This could just as easily result in a double top and a move down toward new lows. We will have to see how price reacts if and when we get there.

In terms of the long term cycle count we are still unclear if June was the long term cycle low. As the new daily cycle unfolds we will know more about the fate of the weekly cycle which will shed more light about the direction of the long term cycle. For now it’s best to play it cautiously until there are better signs this daily cycle will be right translated.

Conclusion

The price action over the next 2 weeks is likely to tell us how the market will trend for the rest of the year. This is where we will either confirm the assumption that we are declining in the weekly cycle or a new high is ahead of us. Very exciting since the implications are huge either way!

TL;DR

We got our daily cycle low on Sept 06 and then rallied almost 5% with three strong up days in a row to start the new daily cycle. Monday begins day 4 and we know the CPI release Tuesday morning will be the next big catalyst.

Overview

We are very early in a new daily cycle and the most important thing from here is determining if it’s going to be right or left translated. As is often the case, the character of the daily cycle will impact what happens on the higher time frames including the weekly cycle which is currently in decline. Yet if we break above certain levels, that will invalidate this bearish scenario. More on that below.

The Daily Cycle

Friday was day 3 and so far we’ve had very strong trend days which suggests we may get some cool off in the early part of the coming week. Especially as the market awaits the CPI release on Sept 13 at 8:30 AM EDT. So we could see chop starting with the ES futures opening Sunday (Sept 11) at 6 PM EDT. CPI day will be day 6 and I expect we will get a decisive reaction after some initial trapping. There is much to suggest that the number is going to show inflation slowing especially given the drop in gasoline prices. This sets the market up for a continuation higher for the rest of the week. As always, we will have to see what the price action does in real-time but that this is a plausible scenario based on where we are in the daily cycle, the market structure and the macro context.

The next catalyst on the horizon will come the following week with the FOMC meeting and press conference on Sept 21. One scenario to be ready for is that date serving as the DCH. You can imagine a run up following CPI and the FOMC announcement causes a swing high which begins the daily cycle decline. It will be day 13 by then which makes it a good candidate for a DCH as discussed in detail in this video

As far as the important levels to be aware of, we did gap up on Friday which means this area likely get’s revisited later in the daily cycle. The gap exists between 4022.94 and 4010.50. The most important completed pattern was on the weekly time frame: we closed as an outside bullish weekly candle by staying above 4062.99. That is a very bullish signal. As remind everyone often, a bullish outside candle is always a false breakdown on a lower time frame so it’s something to pay attention to.

• Current Count: Day 3

• Previous Daily Cycle Low: Day 25 (6/17/22)

• Current DCH: Not Printed Yet

The Weekly Cycle

This past week was week 12 and as mentioned above was a bullish outside candle. These patterns usually see continuation in the direction of the breakout though some chop/consolidation is to be expected to digest the most. The most important question is what this means for our thinking that the weekly cycle decline is underway. So far we remain well below the weekly swing high though that could change quickly next week.

The possibility remains that this daily cycle low could become a higher low on the weekly chart if we can make a new high above the week 9 high. If that is going to happen we would need to see some strong bullish follow through next week so we will have a very clear indication either way especially with CPI on Tuesday acting as a catalyst to bring price to a decision. We then have the FOMC meeting the following week so that will build on whatever pattern develops from next week.

As you can see from the weekly chart below, we are carving out that potential higher low and the next two weeks will make it clear if that’s what we’re getting. That will be a massive long signal because it will suggest a rally into Q4. For now we just continue to watch the price action including the monthly chart.

• Current Week: 12

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

• Current ICH: Week 9 (8/15)

The Long Term (3 Year) Cycle

Last week I wrote “…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 week we have a very different picture after a 5% rally of the daily cycle low.

The September candle is now green and most importantly, it’s made a lower low below the August candle as mentioned last week. When a candle makes a lower low and then goes green, this is a sign it may become a bullish outside candle. This is exactly the pattern that played out with the weekly candle. This is not a coincidence. It’s how price action works. Patterns on a lower time frame will form on a higher time frame if they see enough follow through in the direction of the trend. In this case the bullish outside weekly pattern is trying to follow through on the monthly time frame. That would take price back above 4325.28.

As I always say, this is a high probability pattern but nothing in the markets works 100% of the time so it doesn’t mean it will play out to completion the way it did on the weekly chart. That said, it’s important to be aware of the potential scenario. This could just as easily result in a double top and a move down toward new lows. We will have to see how price reacts if and when we get there.

In terms of the long term cycle count we are still unclear if June was the long term cycle low. As the new daily cycle unfolds we will know more about the fate of the weekly cycle which will shed more light about the direction of the long term cycle. For now it’s best to play it cautiously until there are better signs this daily cycle will be right translated.

Conclusion

The price action over the next 2 weeks is likely to tell us how the market will trend for the rest of the year. This is where we will either confirm the assumption that we are declining in the weekly cycle or a new high is ahead of us. Very exciting since the implications are huge either way!