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10-Week Cycle Bottoming!

In my last article for Safehaven.com (http://www.safehaven.com/showarticle.cfm?id=8247), back in August I noted that both the 10 (45-54 day) and 20-26 week (120-day) cycles were bottoming, and that a daily close above VTL-1 resistance would signal the combined bottoms for these components in place - and thus also confirm a rally to new all-time highs. The daily close above VTL-1 resistance was seen on 8/22/07, which thus indicated this rally in progress. At the same time, I noted a larger upside price projection from the 360-day cycle to 1574 - 1621 SPX CASH, which was in fact hit on the most recent swing up, with the index actually topping at 1576.09 on 10/11/07!

For the near-term the nominal 10-week cycle is in the bottoming process. A few weeks back (in my daily advisory) I noted that this same 10-week cycle was in topping range - and that the next important swing high on the daily chart would come from the topping of this particular component. Drawing a new VTL-2 line under the price action at that time thus set our downside reversal point for this component in play, and on 10/15/07 the SPX confirmed the downward phase of this component in force by closing below it. From there, our usual downside magnet was the 45-day moving average, which was subsequently hit on 10/19/07 when the SPX hit 1504.08.

So what's next? As per above, this same 10-week cycle is now in bottoming range. It could have seen it's bottom with Wednesday's spike down to the 1489.56 level - as that low was accompanied by some net positives with market breadth, something we normally look for at cyclical bottoms. To confirm a low with this component, we would now need to see a daily close above VTL-3, which is just overhead. Should that occur in the days ahead, then the upward phase of this particular cycle would be confirmated in force, and thus the expectation would be that the index will make a run back above the 1576.09 swing top, but more likely to make a run at the low-1600's for this index.

Otherwise, should the index somehow manage to hold below this VTL-3 for now, then there is still a chance that a lower low could materialize before the bottom for this 45-day cycle component is in place. Should that instead be seen, then there is some statistical analysis that we can take a look at that should provide some additional information on what to expect. That is, in analyzing all of the 45-day (10-week) downward phases in the past where this component registered the pattern of a 'higher-low' - and then also registered a 'higher-high' again on their following upward phase (as the current rotation is favored to do), about 80% of these bottomed on or before the 13-14 trading day mark off the top, while better than 90% witnessed their bottoms before the 15 day mark. If seen on the current rotation, this infers that the next bottom for this component should be seen prior to 10/30/07 - but with very good odds that it will be seen prior to 11/1/07.

With all of the above then said and noted, the action in the coming days obviously will center around this key trendline resistance level, either to soon confirm our nominal 10-week cycle bottom - and thus call in play a rally to new all-time highs - or, alternately, to stall the current swing up to allow one more drop to new swing lows for the move in the days ahead.

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