TL;DR

The rate hike announcement and subsequent press conference was not received well by the market creating another swing high on the daily chart and bringing price to within 1% of the June low. This is further evidence that we are in the declining phase of the long term (3 year) cycle which means lower prices for the rest of the year at the very least.

The Daily Cycle

Friday was day 12 of the daily cycle and we have a top on day 4 so far. This is also already a failed daily cycle as we’re now well below the previous daily cycle low from Sept 06. That is the set up for a very bearish daily cycle since these typically last at least 20 trading days. As I mentioned last week, it’s possible that we are making an “extended” daily cycle low which in practical terms would just mean the DCL we thought we had on day 54 was not actually the DCL. This is something we will only know for sure in hindsight but we should be aware of the scenario to try to watch for signs that this is what is playing out. So far it’s looking like we’re getting the bearish interpretation especially as all the higher time frame charts are also showing clear downtrends including some other indices which are leading to the downside and suggest SPX will follow.

In terms of the structure of the chart, we’re now extremely stretched to the downside having dropped almost 10% in practically a straight line. As I discuss in this video, there are several scenarios we could see play out to print a lower high before resuming the move lower. That doesn’t mean we can’t keep falling but a bounce will happen eventually. I’ve added a few more details to the daily chart below to provide some context. The first is the 200 day moving average in yellow which is clearly sloping lower and shows visually we have spent most of 2022 below it. We should not be surprised to get a rally back to that average at some point, perhaps as part of the advancing phase of the next weekly cycle. If you are inclined to short this is a good spot to watch for a swing high to confirm the start of the next leg lower on any rallies. I have also called out the big gap left behind by the CPI candle. That zone will be important on any rallies so be aware of how price reacts there.

• Current Count: Day 12

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

• Current DCH: Possible Day 4 (Sept 12)

The Weekly Cycle

This past week was week 14 and we closed as another down week and a hair away from making a new low for the weekly cycle and officially having a failed weekly cycle similar to how we have a failed daily cycle. We bounced late Friday for SPX to avoid going below the June low but any short term rally is likely a good opportunity to to add to or initiate shorts. If we expect a 20 week cycle that would mean we have another 6 weeks of trending lower before any sustainable rally which might last a few weeks. Important to note since we are in the declining phase of the 3 year cycle, we would expect that even after we get our ICL for this week, we’re still not out of the woods.

In the below chart you’ll see the 200 week moving average in yellow. As we approach this level you will start to hear people refer to it on CNBC, Twitter, etc. The Dow has already closed below it but SPX remains above it for now. For context, in the depths of the bear market that resulted from the Global Financial Crisis (GFC), price was almost 50% below the 200 week moving average. That is important perspective since SPX has not even tested this level yet let alone close below it. It indicates we could be in for quite some downside in terms of time which is the base case since we are declining into the 3 year cycle low. More on that below.

• Current Week: 13

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

• Current ICH: Week 9 (8/15)

The Long Term (3 Year) Cycle

As of Friday’s we are hovering ominously just above the June low for SPX while the Dow Jones Industrial Average already made that new low. This means the Dow is without a doubt in a monthly downtrend. It just made a lower high and is now making a lower low. We would expect SPX to follow even if we do get a short term bounce here given how stretched to the downside we are in the short term. Just as we are in the declining phase of the weekly cycle, we are also declining in this long term cycle (3 year cycle). That means even after we get our ICL for this weekly cycle we could expect another bearish weekly cycle after that which would take us into 2023.

This week I have also added the 50 month moving average to the chart below for some additional context. You can see below it’s still sloping higher and we’re hanging just above it. You will hear a lot of talk about the 200 week moving average in the coming weeks and this is the same idea. We would expect price to fall below this moving average eventually. In the case of the Dow it has already done this which makes sense since we know it’s making lower lows on all time frames now.

• Current Month: 30

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

• Approximate Cycle Low Timing: March 2023

Conclusion

Another big catalyst is behind us with the rate hike this week and the market reaction has been fairly clear. We already new we were in weekly cycle decline after the Jackson Hole speech and this bearish reaction confirms the monthly downtrend which should take price lower into March of 2023 if past cycles are any indication. As always, I will be calling it in real time on Twitter so make sure to follow me there