Friday, April 22, 2011

4/21 Weekly Commentary

I am currently long 6% SDS with 2% UCPIX and 2% SOPIX.  I will enter short futures on Sunday night.  If the overnight Sunday market continues to rally I can exit futures.
XMI and SPX post similar count.
SPX and Nasdaq futures and cash are both about 1% away from their April highs.  Stock futures closed well below last night's highs.
I had previously identified that the Japan quake had temporarily altered market psychology such that a sharp decline was registered initially in the face of positive I1 (3/4 through 3/25) and bottomed 8 trading days after I1 bottomed.  I1 peaked 3/25 and declined, while stocks peaked 4/6 for a gap of 8 trading days again.  I1 then bottomed 4/6 while stocks bottomed 4/12 for a gap of 4 days.  S&P put the U.S. on credit outlook which resulted in a later bottom.  Measuring this bottom against I1 it was 6 days.  I1 then rallied from 4/6 through 4/18-19, while the market has continued to rally.  If the gap is 3 days from 4/18 then the market peaked today.  If the gap is 4 days measured from 4/19 then the market will peak Monday.  Friday being a holiday counts toward the time decay.  Because I1 is not cycle-based it never inverts.   I'm assuming the market will peak Monday. 

I scaled back SDS to 6% as an expectation of Monday being peak day and will use futures in case of overnight declines.  I've used a 30-day average of I1 to identify important turning points in the past.  This measure is fast approaching a major top.
Here is the newly optimized cycle chart for SPX:
Here is the decennial chart:

The precious metals are due for a top 4/28, using the PM1 sentiment gauge:
The interpretation of any of the sentiment gauges is that probabilities favor top date, but if the top is rounded (meaning that it takes time before it displays noticeable decline) then the second probability is that the top will occur within the rounding period.  In this case up to May 1.
During the 1980 peak PM1 displayed a flat top that lasted a 1.5 weeks on either side of the actual top. The top occurred right in the middle of that flat period.  In 1980 Comex silver peaked at 41.50 while stop silver peaked at 48.  This time Comex is 46.06 while spot is 46.66.  Ideally spot will rally to 48 on 4/28, but that's asking for a lot of converge.


  1. Why is the cycle gauge so flat compared to last year

  2. This is a long down cycle. The cycle moves often do not correspond with the size of the price move. I added a decennial chart to the Weekly Commentary and I'll create an Addendum for a broader view of these cycles as well as other additions, since this is a critical turn period.