Originally posted at http://astrocycle.net/Aug1_08.php.
Breadth Summation index no longer 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 BSI has continued higher to the zero line but the market made little gains, suggesting the selling pressure from the expected 2 year cycle low in August is still high. This should take us to test the lows in mid to late August for the SPX, but the Nasdaq is vulnerable to a deeper decline.
The Breadth Summation index is made up of a dozen Breadth and Momentum indicators and is a good indication of oversold and overbought conditions.
Nasdaq quite overbought
The Nasdaq white Tick line has not been below the mid-line in 4 months despite the June decline, since Techs are perceived as immune to the credit crunch. The Tick has now formed a potential Head and Shoulders formation with the May-June-July peaks, suggesting a good move down is coming and the Tick should spend a considerable amount of time below the mid-line. The bslue Put/Call ratio line also suggests a downturn since it has already turned up from levels near the May 19th high. While we could have another wave up to complete the possible A-B-C-D-E structure and allow the Tick and VIX to reach more overbought levels, we are likely to test the lows or make lower lows in August for the 2 year cycle low.
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Charts courtesy of StockCharts.com
Nasdaq has yet to drop
The Nasdaq is the only market holding not only above the March lows, but also above a couple of key up trends that the SPX and Dow have already broken. Since the Nasdaq is the most overbought as discussed above, it would appear that the Nasdaq could be the major casualty of the next decline for the expected August cycle low.
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Charts courtesy of StockCharts.com
The VIX and the 55/110 trading day cycle
The 55 and 110 trading day cycle series are derived from Prime 11, a key number found in the 11 year Solar Recession cycle, which correctly forecast 5 of the last 6 recessions, and predicts one near 2012. The 55 and 110 TD cycles can be detected quite easily in this chart of the VIX, and they suggest the 9 month and 2 year cycle lows are likely to occur near the 110 TD cycle low and Full Moon of August 16th.
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Charts courtesy of StockCharts.com
The VIX and Alternation
Alternation in the markets is quite common as the actions of traders expecting recent history to repeat cause the market to behave differently cheating them out of easy profits. Shallow and Deep corrections often alternate, and periods of Fear also alternate as seen in the chart of the VIX below. Since the past 9 month cycle high in Volatility saw 4 large peaks, the next cycle high in August is expected to be less severe. We already saw this with the first VIX spike in June being lower despite the SPX making new lows, and any spike in August should also be weaker and that could mean only marginal new lows if any in the SPX.
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Charts courtesy of StockCharts.com
Medium term cycles
Many of the cycles discussed can be seen in the chart below, and it shows a different alignment of the 110 TD or 22 week cycle than shown above. This series has Sept 11th as a cycle high, and could give a good rally from the expected 9 month cycle low near August 28th.
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Charts courtesy of StockCharts.com
The 9 month cycle low of late August
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 the Nasdaq is now as overbought as it was at the late December and late February highs just before declines.
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Charts courtesy of StockCharts.com
The 2 year cycle low of August
We can se the 2 year cycle low near August with this chart of the Percent of Stocks above their 200 day moving average. We can also see that the Nasdaq is approaching resistance lines that could turn it down for the August cycle low window. Recent lows came in the first half of August, and came as late as Sep 30th in 2002.
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Charts courtesy of StockCharts.com
The Fed 5 year cycle has peaked
The Fed's cycle of low rates to rescue the economy from misuse of easy money from the last cycle of easing has begun with the credit crunch of August 2007. We can see that such easing periods have lasted 3 years on average lately, and with some estimate of credit losses close to a trillion we are likely to even exceed the average duration.
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Charts courtesy of StockCharts.com
The PI 8.6 year cycle has peaked
Martin Armstrong discovered this important cycle, and its global behavior can be clearly seen in the chart of major asset classes below. The bull market in Treasuries fueled by global trade and the resulting demand for US Dollars is coming to an end soon. Fittingly for the finale, many asset classes and major markets are participating in the final Bubble, including Bonds, Stocks and Commodities. Since most asset classes have already turned down for this 8.6 year PI cycle high, it leaves Bonds as the last safe place to hide for now.
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Charts courtesy of StockCharts.com
