Breadth Summation index turns up from oversold
The Breadth Summation index (BSI) turned up from very oversold levels and changed our stance to Neutral since July 3rd, 08 from our Sell the rallies since June 6, 08. The word Cardinal comes from the Latin cardo for "hinge" or turning point, and that is why we refer to the turn in seasons as Cardinal dates. We are all affected to some degree by the beginning of a new season, and this is often reflected with a change in psychology and corresponding pricing of risk. Chris Carolan's 1998 award for his work on Panics showed that they almost always occur on a Cardinal Moon. While 1929 and 1987 style Panics are rare, smaller versions of the same phenomena occurs quite frequently as shown in the Cardinal Moons chart below. In any case, the Moon Trading chart discussed lower shows that it is always best to be aware of the Moons, especially when the market is volatile and/or trending heavily towards one of these Moons. As discussed in the last Weekly Update the Cardinal New Moon of January 22nd taught us that support levels can be broken violently under these Moons, with the proper news and/or rumors to set them off. Under these conditions, it is advised to be careful until the New Moon of July 2/3rd is a few trading days behind us.
The Breadth Summation index is made up of a dozen Breadth and Momentum indicators and is a good indication of oversold and overbought conditions. It includes the McClellan Summation, Cumulative Advance/Decline and Up/Down volume, Stocks above 200 day MA, Bullish Percent to see if the market is actually gaining ground, the VIX to see where the majority of traders are likely positioned.
Emotional Markets turn near the Moons
Trading the Moons, which can be done with amazing success at times, is not about statistics which don't tell the whole picture because of inversions which actually make the statistics weaker and less significant than they really are. You can buy Full Moons and sell New Moons, just like you can buy in November and sell in May using the seasonal statistics, and greatly increase your buy and hold profits in both cases as seen in this study. More information can be found in an interesting study of the effects of the Moon on Markets of the G7 group. However looking at the Moons closer using a line chart to accentuate the turning points, we see that they are quite accurate and profitable especially in an emotional market. Over the last 9 months they inverted 7/9 times or about 44% of the time, but such inversions can be detected as they occur with regular technical analysis tools to determine changes in direction and momentum.
Holiday week-end behavior
Recently Holiday week-ends have seen the market make turns of significance, and if this pattern continues we could make a low of significance near Independence Day.
Elliott Wave count looks almost complete
The decline from the May 19th A-B-C-D-E corrective high continues to display momentum indicative of a Wave 3 down from the October 2007 highs. If this is the case and we finish Wave 1 down this week, then the upcoming rally should last no more than 3 weeks or 50% of the decline from May 19th. If we make a low with this July 2/3rd New Moon as suspected, then the next Full Moon of July 18th will likely be a high and well within the time allowed. The White Tick line and Blue High/Low ratio line are almost as low as they were in March, however the Red VIX line remains lower for now but that could change with a spike higher on one bad piece of news.
Elliott Wave target low for 2008
The minimum Elliott Wave target for 2008 is the start of the previous 5 waves and 4 year cycle low near 1,220 and we have almost reached it this week. However a more likely target with much stronger support is the 2004 high and 2005 lows near 1,150. Since the decline from the May 19th high was quite severe, we could easily reach the 1,150 level later this Summer or Fall.
Heavy cluster of Cycles late June
The June newsletter correctly warned of the breakdown in the Banking sector and the cluster of cycle lows in the last week of June. With the next date of July 31st expected to be a low, this would make July very volatile with a possible July 18th Full Moon high, followed by another low near the Cardinal New Moon of August 1st.
Longer cycles turning up as well
With the 12 month and 22 week cycles both bottoming now we are likely to have a very sharp rally from the lows this week. However the 9 month cycle low near August 25 may give us a sharp pullback and possibly new lows if the 22 week cycle high inverts in a strong trend like it did in late 2006.
The 9 month cycle low due in August 08
We can confirm the late August 9 month cycle low with this chart of the Percent of Stocks above their 50 day moving average. This indicator also shows how oversold we are compared to the March lows, suggesting we will rally soon.
The 2 year cycle low due in August 08
We can place the 2 year cycle low quite accurately near August 1st with this chart of the Percent of Stocks above their 200 day moving average. We can also see that we are approaching oversold conditions last seen in Fall 2003, suggesting there will be a very good rally from the final low of 2008, probably into Spring 2009.
The 4 year cycle high due in April 08
We can see the 4 year cycle quite well in the chart below of long term moving averages of the Trin and Put/Call ratio. The Red Trin line has been turning almost on schedule, and is likely to turn down again anytime, especially since it has been making lower lows. The Blue Put/Call ratio has been disconnecting from the 4 year cycle since the 2000 top, with increasing levels of Put protection being bought all the way through the 2006-2008 rally. This is strange behavior, and may have to do with portfolio insurance, but we need to keep an eye on this for clues as to what is the actual force behind this behavior.
The 1/3 Century and 400 month cycle high due in April 08
Counting 400 months from the October and December 1974 double bottom that started this Bull market takes us to February and April 2008, and the decline since May 2008 has been vicious - beware.