U.S. Stock Market Cycles Update

By: Jim_Curry

With the action seen in past months, it is time to take a look at what the various time cycles are saying in regards to U.S. stocks - as well as any particular technical indications that track the same.

Short-Term Cycles
In terms of time, as noted in our daily Market Turns report, the short-term cycles projected a trough for the SPX by the June 28th timeframe, plus or minus a day, with the index bottoming out at the 2691.99 figure - made right on that June 28th date. From there, the cycles called for strength into the mid-July timeframe - which we are obviously now into, and where another short-term peak is soon due with the 20-day cycle, though it can easily come from higher numbers than already seen:

Stepping back slightly, our anticipation is that the short-term cycles will see an eventual correction into the late-July or early-August timeframe, a move which should see the 18 and 35-day moving averages acting as price magnets. In terms of patterns, that decline is expected to end up as countertrend - holding above the 2691.99 SPX CASH swing low from late-June. If correct, the SPX should turn back to take out whatever peak that is registered on the current upward phase into late-August or early-September, with the potential for the index to be testing the 2872.87 swing top, from back in January.

The Mid-Term Cycles
The mid-term cycles for U.S. stocks are the 180 and 360-day waves. The smaller 180-day cycle (chart, above) is seen as 108 days along and currently regarded as bullish off the February, 2018 bottom. The larger 360-day cycle is seen as 227 days along and is labeled as bearish, with the combination of these two waves next projected to trough again around the late-September to mid-October timeframe of this year.
In terms of price, it would currently take a reversal below the 2676.81 SPX CASH figure to confirm the next 180-day top in place - a number which should start to rise again in the days/weeks ahead, depending on the action seen in-between. Once this high is set in place, then the probabilities will favor a sharp decline into the aforementioned late-September timeframe or beyond, a move which is expected to end up as countertrend - holding above the prior 180-day trough of 2532.69 on the SPX.

As for the larger 360-day cycle (chart, above), its last bottom was registered at the 2417.35 SPX CASH figure, doing so back in August of 2017. That puts this wave at 207 days along - and thus is due to put downward pressure on the markets in the coming months. In terms of time, as with the smaller 180-day wave, its next trough is projected for the Autumn of this year, a move which is favored to end up as a larger countertrend affair - within an ongoing bull market with the larger four-year cycle.
In terms of price, the overall assumption is that a minimum drop back to the 200-day moving average will be seen at the next 180 and 360-day trough - though a tag of the lower 360-day moving average would have the best technical 'look'. As noted above, that move is anticipated to end up as countertrend; if correct, then the probabilities will favor new all-time highs on the next upward phase of the 180 and 360-day waves, with that rally lasting into the Spring of 2019 or later.

The Long-Term Cycles
Above the 180 and 360-day cycles, the largest cycles that we track are the four-year and nine-year waves, with the smaller four-year cycle being the more dominant of the two. The last trough for the four-year cycle was registered back in February of 2016, with the SPX bottoming at the 1810.10 figure, thus putting it at some 611 trading days along to the upside - and with that is currently deemed to be heading higher into the Spring of 2019.

In terms of technical action, the indications from long-term market breadth favor the 2872.87 swing top (from back in January) to be taken out to the upside before this four-year wave attempts to peak. Going further, back in February of this year, this cycle ended up confirming an upside target to the 3068.15 - 3277.82 SPX CASH region, and with that the assumption is that some try at this target zone will eventually be seen.

Going further with the above, the same 3068.15 - 3277.82 SPX CASH target range will also act as a major resistance zone to the current four-year cycle upward phase. Either way, from whatever high that ends up forming with the four-year wave, the SPX is expected to give way to a sharp 7-12 month decline into the next projected trough for this cycle, which looks set to play out into late-2019 and/or the first few months of 2020.

Stepping back even further, once the next peak is in place with this four-year cycle (i.e., on or after the Spring of 2019), then the probabilities will favor a sharp decline which takes the SPX back to or below its 96-month moving average into the late-2019 to Spring of 2020 timeframe. In terms of patterns, that move is expected to find support at, near - or just below - the prior four-year trough of 1810.10 on the SPX.
For the bigger picture then, a four and nine-year combination bottom into late-2019 or later - if seen as expected - should give way to a sharp rally into the 2022-2023 timeframe, due to the normal statistical inferences (in regards to time) with these waves. In terms of price, that rally should be in the range of 70-100% or more, before setting up yet another four-year peak - and then decline phase - into the year 2024, plus or minus.

Technical Indications
Our best indicator for long-term direction of the U.S. stock market is the NYSE advance/decline line (chart, above). With that indicator having made new all-time highs back in January, the overall inference was that the 2872.87 swing top would eventually be taken out to the upside going forward, barring any mid-term correction phase seen in-between. That assessment was due to the fact that the a/d line will tend to diverge well ahead of price at bull market tops, with a normal lead time of 7-11 months or more.

Going further with the above, with the advance/decline line recently making new highs, we can make the inference that the peak for the bull market should ideally be another 7-11 months or more into the future; in other words, the probabilities are low for the four-year cycle to top prior to February of 2019, though the same could still be making higher highs on or past next May.

In looking at the indications for the mid-term, our 'Mid-Term Breadth index' (chart, above) offers up a very similar technical inference to that from the advance/decline line. That is, when this particular indicator moves above the +500 level on a rally, it normally always infers that any mid-term correction phase to be followed by a higher price high. Thus, this also says that the 2872.87 swing top will be exceeded at some point.

Seasonals
From the long-term history of U.S. stocks, we know that the normal bullish seasonal period  in U.S. stocks lasts from approximately late-October or early-November until the following Spring, with the bearish period lasting from the May - October timeframe. However, in more recent years I have noted that this bullish seasonal period has actually extended into mid-Summer, which is then more bearish into the mid-October timeframe.

With the above said and noted, we are now moving into the bearish seasonal period of July through October, which presents the next logical spot for the next decent decline phase to be seen. As noted earlier, that decline is expected to come from the 180 and 360-day time cycles, though from what price level this will commence remains to be seen.

The Fed/Liquidity Model
The fed model is the one fundamental indicator that I track, and which is seen as the biggest negative for the market in the coming years. This again is due to the fact that the fed is raising interest rates - but is more so due to the fact that they are currently unwinding 30 billion in U.S. treasuries each month - a number which will rise to the 40 billion mark in August, then to over 50 billion by the month of November.

Even with the above said and noted, it should take a combination of technical factors - and the action from the fed - that triggers the next bear market in stocks. Ideally, that won't try and materialize prior to the Spring of 2019 or later, and from somewhere north of the 3000 SPX CASH figure. Eventually, however, another bear market will materialize, one that sends stocks down for a correction of 30% or more off the top.

McClellan's 10-Year Oil as a Leading Indicator for Stocks
In some of his work, Tom McClellan (i.e., McClellan Market Report) has noted that the price of crude oil can be a leading indication for the direction of the U.S. stock market, with a 10-year lead time; in other words, what the oil did ten years ago is often what stocks are doing right now. This is a very long-term view, and the smaller 'wiggles' will not always align, but, either way, this indicator is worth paying some attention to - particularly being in this July, 2018 timeframe, which this forecast shows as a peak.

The Eurodollar COT vs. U.S. Stocks, Leading Indication
In his work, McClellan has also noted the Eurodollar COT (trader commitments) as being a leading indication for the U.S. stock market, with an approximate lead time of one-year. In other words, what happens a year back with the Eurodollar COT is what stocks should be doing right now, and what this indicator is doing right now can be an indication of U.S. stocks one year into the future.

With the above then said and noted, the chart above shows the approximate turning point dates with the Eurodollar COT, with the next turn shown for mid-September of this year, and is projected to be a market bottom. Once again, this is not that much out of line with the 180/360-day time cycles - as well as the seasonal patterns - which suggest an early- Autumn low, one that is followed by a sharp rally phase of several months.

The Bottom Line
The overall bottom line is that the four-year (time) cycle upward phase is favored to remain in force into the Spring of 2019 or later, with new all-time highs eventually expected to materialize. At some point in the future, a divergence between long-term breadth and price should start to develop - which, if seen, would be an early signal the next larger-degree peak (with the same four-year cycle) is trying to form. Stay tuned.

Jim Curry

Market Turns Advisory

Email: jcurry@cycle-wave.com

goldwavetrader.com.

Jim Curry is the editor and publisher of The Gold Wave Trader, which specializes in the use of cyclic and statistical analysis to time the markets. He is also the author of several trading-related e-books, including ‘The Volatility Reversal Method’, also ‘Cycles & Moving Averages’. He can be reached at the URL above.

Copyright 2018, Jim Curry - Disclaimer - The financial markets are risky. Investing is risky. Past performance does not guarantee future performance. The foregoing has been prepared solely for informational purposes and is not a solicitation, or an offer to buy or sell any security. Opinions are based on historical research and data believed reliable, but there is no guarantee that future results will be profitable. The methods used to form opinions are highly probable and as you follow them for some time you can gain confidence in them. The market can and will do the unexpected, use the sell stops provided to assist in risk avoidance. Not responsible for errors or omissions.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.