End of Cycle?

The contradiction of a rising market and morose sentiment, the Armageddon crowd and the permabull talking heads; where’s a guy to look for some clarity? I’ve been wondering how to get some perspective on the S&P futures market for a few weeks now. I’m not the only one, obviously. We’re all a bit nervous getting long at these levels. A few ideas and a few trades have come to mind. Be patient for a moment while I set the context.

One of the frustrations I have with my trading platform is that its charting implementation is relatively weak. My specific complaint is that I can’t ‘push’ the chart left to sketch scenarios on the right (future). This is constraining for obvious reasons, but please Interactive Brokers I make money on the right side of that chart, you make money on the left. Fair is fair… So I fished around, again, for a charting platform better adapted to prediction and playing with my lines. I was looking for a 3rd party charting platform like Sierra Charts, which in my opinion is weak. TD Ameritrade’s is good and I use it occasionally to visualise option spreads, but I’d rather trade with IB.

I did manage to find something which works for me on tradingview.com. I would prefer something I can manage locally and not web-based, but for quick and dirty chart analysis, as a “brouillon“, it’s very well done. Bravo.

Here’s the chart I’m playing with.

ES 4 year chart

What stands out is the cyclical nature of this bull run. You can see very a fairly consistent cycle after the initial bull reaction in March 2009 – a. I filtered out some of the churn to make my point, but the cycle is still clear.

  • 71 day decline
  • 170 day advance
  • 74 day decline
  • 178 day advance
  • 36 day decline
  • 107 day advance
  • 43 day decline
  • 180 day advance (today)

That’s the time cycle, what about the price range? Well, what jumps out here is the second green bar starting in October 2011 – b, a 534 point advance to about where we are today. (Cloned from the 534 point advance off the 2009 lows.) The second advance, starting in july 2010 – z is a 360 point advance. That move makes me doubt the pull-back I’ve labeled 3 and 4 because it seems to fall between the two, and both 3 and 4 bounced firmly off the 200 DMA,  so under another scenario you might ignore those two pull-backs, but if you don’t the 360 point advance off 3 in May 2012 also brings us near today’s levels. In other words the b and z advance, supports a pullback in the the short term. Assuming that started today, a big assumption, medium term downside targets should be 1517, 1480, 1350. Even if we pulled backed to 1350 on a 100 day cycle, say end of September, we’d still be in a bull market.

Calling a top is a fools game, still I think we’ve a good potential trade here, somewhere…

The objective will be to limit loss on the upside and keep the downside open to atleast 1517. I’ll be back after lunch to share a few trades.

Good Trading.