For some time I have been expecting a 20-week cycle trough to form in “the middle of June” in the US markets. As the stock markets bounced up this week I started wondering whether that trough had formed on Monday, or whether we should still be expecting a strong move down into the trough.
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Here is a chart of the S&P 500 (ES futures contract):
Monday’s trough occurred right when we expected it, but it was a very shallow and brief move down into the trough. Is it possible that it is the 20-week trough?
Yes it is possible, but perhaps the more interesting question is what this means we should expect next.
First of all, if that was not the 20-week cycle trough then we expect the market to come down hard and soon to form that trough. The numbers on the above chart of the S&P 500 don’t lead us to expect the trough to arrive late, but this chart of the Dow Jones Industrial Average (YM futures contract) shows how we could allow some extra time for the trough to form:
But what if the trough on Monday 16 June 2014 was the 20-week cycle trough? (Or even the 40-week cycle trough as shown in the Dow analysis).
In that case it is clear that there is still a strong bullish underlying trend to the market. Underlying trend changes slowly, and there has been no evidence recently to indicate that it is turning bearish yet. This means of course that we expect yet further bullish moves as price bounces out of this potential 20-week cycle trough.
As a matter of interest an indication that underlying trend is turning down would be provided if this not yet confirmed and very subtle 20-week cycle trough should turn into a straddled trough, which would require a symmetrical price action on each side of the trough. If the market fails to significantly rise above the peaks of last week then we would be looking at a symmetrical price move, and a potential straddled trough, implying that the underlying trend is turning bearish, and therefore that we are in for some extended bearish moves in the market.
Don’t forget that Traders World are running a special this week on the Kindle book which includes a chapter about the FLD Trading Strategy. Between 24 and 27 June 2014 you can download the book for free.
Let me know whether you think that 20-week cycle has formed, or still lies ahead of us.
Have a great week and profitable trading!
