Friday 21 March 2008

Easter Chart Bonanza

Time to update January's long term forecast. The prediction for 2008 was for "weakness until around the end of March and then a strong recovery until the end of the year". You can read the original cycle analysis forecast here.

We've had the "weakness until around the end of March" with the Emini down 154 points since the beginning of January. We are now at Martin Armstrong's 8.6 year cycle predicted minor low (22 March 2008) and a number of technical and sentiment indicators are suggesting a rally from here:

  • Over-sold against Bonds with bullish divergence setup
  • Extreme readings on Put Call Ratio, VIX and Investor Intelligence data
  • Climactic selling volume showing capitulation by Main Street
  • Commitment of Traders Oscillator starting to turn up
  • Bond market started to rally 20 days ago, and
  • Trend line break out of congestion to the upside

However, after this rally is over I think we will test this year's low again and not see the "strong recovery until the end of the year" start until May. This is based on the 4 year Presidential cycle that typically bottoms around May and continuing professional bearishness.

Before going to the charts, here's a recap of the 6 long term Emini cycles I track:

  • 4 year Presidential cycle
  • 8.6 year Martin Armstrong cycle (Princeton Economic Institute)
  • 8, 9, 10 year Benner-Fibonacci cycle
  • 10 year Larry Williams Decennial cycle
  • 11 year Sunspot Activity cycle, and
  • 16, 20, 20 year David Williams / Kondratiev cycle

And what they were saying for 2008:

  • The 4 year Presidential cycle predicts weakness in the first half of the year, a bottom in May and then a recovery.
  • Martin Armstrong's 8.6 year cycle predicts a minor low around 22 March.
  • Larry Williams Decennial cycle predicts a strong year after some initial weakness.
  • The Benner-Fibonacci, Sunspot and David Williams / Kondratiev cycles have no signals for 2008.

Here are the charts with annotations.

Emini Year to Date Image

Year to Date Performance (Emini daily)

Year to date we are down 154 points on the Emini (continuous contract).

 

Emini Bond Market Valuation Image

Emini with Bond Market Valuation

The Bond market oscillator shows we are over-sold against bonds and have a bullish divergence pattern setup.

 

Emini Put Call Ratio Image

Put Call Ratio and VIX (daily)

Sentiment indicators are also showing over-sold with the Put Call Ratio, VIX and Investor Intelligence Bull / Bear Ratio at extremes.

 

Emini Volume Image

Volume Climax (Emini Weekly)

And lastly, we have had climactic volume on the Emini weekly chart. This usually shows capitulation by the average investor as the professionals step in.

 

Emini Commitment of Traders Oscillator Image

Commitment of Traders: Oscillator -47

A significant turning point could be approaching with the Commitment of Traders Oscillator beginning to turn up.

 

Emini and Bond Market Image

Bond Market with 20 day Delay

In addition, the Bond market made a significant low 20 days ago and there is typically a 20 day lag between bond market turning points and the Emini.

 

Emini Trend Line Image

Trend Line Break (Emini daily)

And the Trend Line congestion zone has been tested on the downside and has now broken to the upside.

 

Emini Commitment of Traders Image

Commitment of Traders: Professionals -2.3% (short)

However, if we get a rally it may only be a technical, short covering one. The real rally may come later in May. The Professionals are still mildly bearish with short positions equivalent to 2.3% of open interest.

 

Emini Seasonality Image

Seasonality (Emini weekly)

Although seasonality has not been working in the market's favor this year, the end of March to the beginning of April is usually not good for the market. But in down years this pattern is not reliable - in 2001 the selling pressure just kept the market at its lows; in 2003 the market began its rally during this period.

 

Emini Hilbert Sine Wave Image

Hilbert Sine Wave (Emini monthly)

Lastly, the long term (monthly) Hilbert Sine Wave has yet to make a cyclical low turning point. So we might test the lows again (around May) after a rally in the meantime.

Good luck with your Emini trading.

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