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Mar 6 - Daily and 60-min Cycles, Looking for an Edge

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March 06, 2012 – Comments (5)

I just posted this on my other blog here: http://marketthoughtsandanalysis.blogspot.com/2012/03/mar-6-daily-and-60-min-cycles-looking.html. Reposting here in case anybody cares

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Yesterday my 60-min Trend System issued a short signal (that is obviously still in effect). If you recall, I have explained that the trading signals that I post are sub-cycle top and bottom signals. However, I also occasionally relay what is happening with my cycle signals. I don't trade them, but there is a wealth of statistical information that I get out of running studies, several of which have paid off tremendously over the last 6 months.

Today will be another similar study.

Because just now I got a cycle top signal on my 60-min system. Now, does that mean that I think we will have a 'major top' here? Nope. Is this the end of P2? (derisive snort). Nope. I think for a number of reasons that is not the case, not the least of which the statistics from my trend system say to not expect such an outcome.

Recall two weeks ago this post, Why I am not looking for 'the top' with the next pullback, whenever it happens. Here is the summary position from the post (but you should really read it):

The Daily Trend System long signal is still on a buy. Two weeks ago the 60-min System was also still on the upcycle half of its cycle. However, it was statistically running long and the odds favored a 60-min cycle top on the horizon (which we got today). However, because the main indicator on my Daily System was still increasing right alongside price since October, what were the odds that this peak will be a 'major top'? And my study results showed that there was a 90% chance (18 out of 20 Daily Cycles) that this price peak would not be the top of this Daily Cycle (i.e. 90% of the time the price goes higher after my main Daily Indicator peaks, which it has not yet done).

So the point of this post is two-fold:
1) Reiterate that point. Statistically speaking, there is little evidence that the price peak that we just saw is a 'major top', and instead the next pullback will be a dip you want to buy
2) Show some relevant stats regarding the 60-minute cycles to help navigate this pullback.

The 60-min cycle signal has occurred and we are in the middle of a pullback. The indicator that I have developed to track pullbacks on the 60-min system has not bottomed yet. And in fact, 61 out of 67 60-min cycles (91%) did not bottom at the peak of my 60-min indicator. This means that statistically speaking there is a 91% chance of lower lows before the real dip-buying opportunity presents itself.

So, in summary:
-- 60-min System says there is a 91% chance of lower lows before the bottom is seen in the downcycle half of the current 60-min cycle (and the *average* downcycle half duration is ~20 days)
-- The Daily System says there is a 90% chance that the price peak that we saw was not a 'major' top and that we should expect higher highs before the current Daily cycle is over (i.e. that the bottom of current 60-min cycle is a dip that you want to buy from a Daily Trading Standpoint).

The reason I think this post is useful is that the Daily Cycles (which average 445 days in duration) represents a nice intermediate balance between the timeframes that position traders and investors look at.

Again these are statistics, not prognostications .... past performance is no indication of future results ... yadda, yadda, yadda. Read the binve standard disclaimer... yadda, yadda, yadda...

So in short, I think the next pullback (which we are now in the middle of) is not a 'short it and forget it' type event. I think it will be a dip that will be worth buying.

5 Comments – Post Your Own

#1) On March 06, 2012 at 3:17 PM, scruffy4life (84.58) wrote:

in case anybody cares

Scruffy cares [sniff]

Hmmhrmmn!

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#2) On March 06, 2012 at 3:38 PM, traderbach (< 20) wrote:

Thanks Binve,

 It's always good to get a technical standpoint to help w/ decisions! I was actually feeling the same thing myself, purely gut & radar.  Appreciate your post!

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#3) On March 06, 2012 at 6:25 PM, binve (< 20) wrote:

scruffy4life,

Thanks scruffy :)

traderbach ,

Thanks!

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#4) On March 06, 2012 at 7:55 PM, Frankydontfailme (27.71) wrote:

Begrudingly, I've started to come around to yourside - that we haven't reached the peak of this powerful bear rally. You've made some great calls, Kudos.

One thing I've been wondering about though - is this "long overdue pullback" way too obvious? By that I mean, EVERYONE seems to be waiting for a 5% pullback and then jump right back in.  I'd like to propose an alternative option: a CRASH, followed by hysteria, followed by another wall of worry rally that brings us towards or past dow 15k. 

Managed money (as of beginning of March) is absurdly bullish: http://www.naaim.org/naaimadsenttrend.aspx

The Cot reports show large and small speculators loaded opposite the often correct commercial hedgers in virtually every market from gold to the Russel 2k.

The smart money has sold or gone short, and the little guys are left to panic.

Have you checked out usdx chart? Commodities and equities could be in for a whirlpool. 

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#5) On March 07, 2012 at 11:55 AM, binve (< 20) wrote:

Frankydontfailme ,

that we haven't reached the peak of this powerful bear rally. You've made some great calls, Kudos.

Thanks, I appreciate that. I have made so many bad calls, I was just bound for a few good ones :)

One thing I've been wondering about though - is this "long overdue pullback" way too obvious? By that I mean, EVERYONE seems to be waiting for a 5% pullback and then jump right back in.  I'd like to propose an alternative option: a CRASH, followed by hysteria, followed by another wall of worry rally that brings us towards or past dow 15k.

That is a question that has been asked/debated on my other blog. And the only thing I can say is 'maybe'.

However, when I look at my trend system stats, odds very very complelling that a crash won't happen here. 90% of previous occurences (18/20) led to higher highs when the indicator configruation that I defined above. And of the two that didn't, there was no crash, just consolidation before the next Daily cycle started. So from this point of view, my Daily Trend System has that out of 20 occurences where this setup occurred, absolutely 0 of them resulted from a crash when the price peak topped with my main indicator peak.

Again, these are stats, not predictions. But I have to say those are compelling stats. So I am specifically *not* looking for a crash / major top here.

Those are all good observations regarding the COT reports. And lends to the idea that a major top *could* be forming.

But it is worth pointing out the the COT often becomes unbalnced like this in bull runs as well. Sometimes it just takes bulls to make a bull market. So while small specs are nearly always bullish at major tops, this condition is necessary *but not sufficient* to guarantee a major top.

My take at any rate. And when I consider all the other evidence out there, I still don't this this cyclical bull is over, which means that I don't think this pullback will be anything like the 2011 pullback.

If I had to guess, I am thinking something like mid 2009 (based on the bullish rates of change that are similar between this rally and the 2009 rallies). That is just a gut call though..

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