Forecast for 12/6/2013

December 7, 2013

I've been saying over the past week that a red warning bar on our Combined chart almost always appears just ahead of the cyclical low on the fundamental frequency - which in this case is 39 days. A couple days ago it appeared on the Dow, yesterday it appeared on the SPX.

 

You can see on the Dow's chart how both the short term and momentum cycles finished deep in the lower reversal zone. The Dow also touched the support of its donchian center line. That almost always leads to a bounce, and with the strength of the NASDAQ of late, along with the fact that it has been forming "higher lows" on its short term cycle, any recovery bounce now on the Dow would should appear on the NASDAQ as well.

 

But has the 39 day cycle bottomed?

 

If you look at the Combined chart again, I've drawn a blue horizontal line that represents an average 39 day period. According to that time, and the center point of the last 39 day cycle low, the next low should be occurring about now.

 

Recall however, that its bottom can take a little time, and round out over a period of a week. But if joined by faster cycles - like the 8 day and short term, the market can make a "V" patterned low, just as it did on October 8th.

 

As discussed in several previous commentaries, we have been expecting markets to strengthen after the 39 day cycle bottoms. The Dow has been exceeding its lower 3rd standard deviation on the Value Chart for 3 days, and with the short term/momentum cycle due to rise, it could be time.

 

Look for resistance on the bounce at the Dow's 5 day moving average. If indices get through that easily, we're on our way. Otherwise, there could be one more momentum pullback first.

 

Keep your stops under the NASDAQ's 10/14/21 DMA, and if the Dow can get back above its declining 5 DMA, we can do a little end of year buying there.

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