Overview +TLDR

If you haven’t already, I recommend you read the Cycles 101 Overview which will give you some important background to understand the details below.

Last week we saw a bullish reaction to the FOMC rate hike and subsequent press conference as Powell indicated any rate hikes going forward would be “data dependent”. Regardless of what the news was, we saw a bullish reaction with SPX closing just a few dollars away from forming a monthly swing low. That said, we are relatively late in the short term (daily) cycle so a retracement would be expected soon. If that retracement is able to end with a higher low on the weekly chart it opens up some upside for the next several weeks or maybe even a few months.

The Daily Cycle

The current daily cycle count is murky because we’ve had a very long cycle followed by a very short cycle. Daily cycles can be quite volatile depending on the asset and the specific circumstance which is why a multi-time frame approach is so important. Understanding what’s happening with the weekly and long-term cycle are more important than the exact count for any daily cycle. That said, focusing on price action at the daily cycle level can provide early entries and exits as you become aware of possible trends that may emerge on the weekly and long-term time frame.

As you can see from the chart below, we had a very long cycle that lasted 54 days followed by a very short cycle that lasted 25 days. We are now on day 28 of the current daily cycle as of Friday (7/29). No matter how you think about it, we are coming up on a time when you would expect us to begin to pullback or retrace. In the context of the daily cycle count, this would mean we expect a Daily Cycle High (DCH) soon since we are so deep into the daily cycle. More importantly, the structure of the chart suggests we need a higher low next if we are to continue in this new uptrend on the daily and weekly level so it’s best to prepare for a retracement and see if it holds a higher low which will be the buy signal for another leg higher. Again, this may end up being a lower high on the weekly or monthly level but could still deliver short term upside over the next several weeks.

• Current Count: Day 28

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

• Current DCH: Not Printed Yet (NPY)

The Weekly Cycle

With the bullish move post-FOMC price confirmed that the swing low back on week 16 was actually our ICL/Weekly Cycle Low. This means the week of 7/25 was week 6 of a new weekly cycle. A new weekly cycle can usually be identified within a week or two of the low so getting confirmation of a new weekly cycle by the time it’s already week 6 is not ideal. Either way, that would still leave a few weeks to rally even if we are going to get a left translated weekly cycle. This last weekly cycle which was only 16 weeks and was actually the first left translated weekly cycle for the S&P 500 since 2019 when we had a short weekly cycle that lasted only 18 weeks and had a high on week 8. In this case we had our high on week 5 and the final low came on week 16. Weekly cycles usually last about 23-27 weeks so having such a short cycle really underscores the point that price action is the primary signal and average cycle lengths are secondary.

With all this said, it is still likely that we’re declining into a long-term cycle low (more details below) so we would expect another left translated weekly cycle. Assuming this time we get a weekly cycle that is at least 20 weeks that would mean we would expect a high before week 10. The exciting news is that we have a new monthly candle opening so we will start to get new higher time frame (HTF) signals that will be an important indicator of where we are headed long term.

• Current Week: 6

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

• Current ICH: Not Printed Yet (NPY)

The Long Term Cycle

The long-term cycle is the most important cycle to be aware of even if you’re making a relatively short-term trade. This is because it’s crucial to know if you’re in the advancing phase where the asset will trend higher or the declining phase where the asset trend lower. Since long term cycles last years from low to low, the advancing or declining phases will last for several months depending on how bullish or bearish the cycle is. This means it gives one a lot of time to capture the move if you’re aware of where you are in the cycle.

In the case of the S&P 500 we are tracking the 3-year cycle here so we’re expecting roughly 36 months between lows. This long-term cycle started right after the COVID bottom in March 2020. Which is to say, the previous long-term cycle directly before this one bottomed with the COVID crash low. After that major low we had an advancing phase that lasted 22 months. Price trended higher since that low on 3/23/20 until the all-time high (ATH) we hit back in January 2022 which was the 22nd month of this 3-year cycle. The index has been in the declining phase of this 3-year cycle ever since. July was month 28. If we get a 3-year cycle of average length we would expect the declining phase to continue until we get a low around month 36 which would be approximately March 2023.

The key here is long term cycles often end up bottoming sooner or earlier than expected so you either get a cycle that is either shorter or longer than expected. Given that, you must use price action signals on a monthly level to anticipate if we’re going to get a cycle low that is outside of the expected timing bands.

In this case it is entirely possible that July will end up being the “3-year” cycle low if we get a monthly swing low and see follow through. That’s not my base case but one I will be watching for and reporting on here. Important to note that QQQ has already made a monthly swing low as of the July 2022 candle close. The July candle closed above the high from the June candle making June a possible candidate for a longer term bottom. From here, all we can do is watch price action on lower time frames to see any signs of bearish reversal that might cause us to suspect this monthly swing low will not hold. That signal would be a left translated daily cycle which goes on to create a left translated weekly cycle. That will be our warning sign that the long-term cycle is still declining and our final low is still months away.

Conclusion

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 and starts the next leg lower below 3636. That’s exciting because it means either way we should have several weeks of trending action after we get through what is likely to be a choppy first week of August. Follow me on Twitter to get the latest updates in real-time.

Overview +TLDR

If you haven’t already, I recommend you read the Cycles 101 Overview which will give you some important background to understand the details below.

Last week we saw a bullish reaction to the FOMC rate hike and subsequent press conference as Powell indicated any rate hikes going forward would be “data dependent”. Regardless of what the news was, we saw a bullish reaction with SPX closing just a few dollars away from forming a monthly swing low. That said, we are relatively late in the short term (daily) cycle so a retracement would be expected soon. If that retracement is able to end with a higher low on the weekly chart it opens up some upside for the next several weeks or maybe even a few months.

The Daily Cycle

The current daily cycle count is murky because we’ve had a very long cycle followed by a very short cycle. Daily cycles can be quite volatile depending on the asset and the specific circumstance which is why a multi-time frame approach is so important. Understanding what’s happening with the weekly and long-term cycle are more important than the exact count for any daily cycle. That said, focusing on price action at the daily cycle level can provide early entries and exits as you become aware of possible trends that may emerge on the weekly and long-term time frame.

As you can see from the chart below, we had a very long cycle that lasted 54 days followed by a very short cycle that lasted 25 days. We are now on day 28 of the current daily cycle as of Friday (7/29). No matter how you think about it, we are coming up on a time when you would expect us to begin to pullback or retrace. In the context of the daily cycle count, this would mean we expect a Daily Cycle High (DCH) soon since we are so deep into the daily cycle. More importantly, the structure of the chart suggests we need a higher low next if we are to continue in this new uptrend on the daily and weekly level so it’s best to prepare for a retracement and see if it holds a higher low which will be the buy signal for another leg higher. Again, this may end up being a lower high on the weekly or monthly level but could still deliver short term upside over the next several weeks.

• Current Count: Day 28

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

• Current DCH: Not Printed Yet (NPY)

The Weekly Cycle

With the bullish move post-FOMC price confirmed that the swing low back on week 16 was actually our ICL/Weekly Cycle Low. This means the week of 7/25 was week 6 of a new weekly cycle. A new weekly cycle can usually be identified within a week or two of the low so getting confirmation of a new weekly cycle by the time it’s already week 6 is not ideal. Either way, that would still leave a few weeks to rally even if we are going to get a left translated weekly cycle. This last weekly cycle which was only 16 weeks and was actually the first left translated weekly cycle for the S&P 500 since 2019 when we had a short weekly cycle that lasted only 18 weeks and had a high on week 8. In this case we had our high on week 5 and the final low came on week 16. Weekly cycles usually last about 23-27 weeks so having such a short cycle really underscores the point that price action is the primary signal and average cycle lengths are secondary.

With all this said, it is still likely that we’re declining into a long-term cycle low (more details below) so we would expect another left translated weekly cycle. Assuming this time we get a weekly cycle that is at least 20 weeks that would mean we would expect a high before week 10. The exciting news is that we have a new monthly candle opening so we will start to get new higher time frame (HTF) signals that will be an important indicator of where we are headed long term.

• Current Week: 6

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

• Current ICH: Not Printed Yet (NPY)

The Long Term Cycle

The long-term cycle is the most important cycle to be aware of even if you’re making a relatively short-term trade. This is because it’s crucial to know if you’re in the advancing phase where the asset will trend higher or the declining phase where the asset trend lower. Since long term cycles last years from low to low, the advancing or declining phases will last for several months depending on how bullish or bearish the cycle is. This means it gives one a lot of time to capture the move if you’re aware of where you are in the cycle.

In the case of the S&P 500 we are tracking the 3-year cycle here so we’re expecting roughly 36 months between lows. This long-term cycle started right after the COVID bottom in March 2020. Which is to say, the previous long-term cycle directly before this one bottomed with the COVID crash low. After that major low we had an advancing phase that lasted 22 months. Price trended higher since that low on 3/23/20 until the all-time high (ATH) we hit back in January 2022 which was the 22nd month of this 3-year cycle. The index has been in the declining phase of this 3-year cycle ever since. July was month 28. If we get a 3-year cycle of average length we would expect the declining phase to continue until we get a low around month 36 which would be approximately March 2023.

The key here is long term cycles often end up bottoming sooner or earlier than expected so you either get a cycle that is either shorter or longer than expected. Given that, you must use price action signals on a monthly level to anticipate if we’re going to get a cycle low that is outside of the expected timing bands.

In this case it is entirely possible that July will end up being the “3-year” cycle low if we get a monthly swing low and see follow through. That’s not my base case but one I will be watching for and reporting on here. Important to note that QQQ has already made a monthly swing low as of the July 2022 candle close. The July candle closed above the high from the June candle making June a possible candidate for a longer term bottom. From here, all we can do is watch price action on lower time frames to see any signs of bearish reversal that might cause us to suspect this monthly swing low will not hold. That signal would be a left translated daily cycle which goes on to create a left translated weekly cycle. That will be our warning sign that the long-term cycle is still declining and our final low is still months away.

Conclusion

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 and starts the next leg lower below 3636. That’s exciting because it means either way we should have several weeks of trending action after we get through what is likely to be a choppy first week of August. Follow me on Twitter to get the latest updates in real-time.