Saturday, May 4, 2013

IMPORTANT THESIS UPDATE

"The real cycle you're working on, is a cycle called yourself."

Robert M. Pirsig (a fine Minnesotan), Zen and the Art of Motorcycle Maintenance: An inquiry into Values.

******

We are nearing the May 10/13 cycle end. This is a good time to revisit the long term thesis as we are near the cycle end period. We haven't had reason to deviate and the market so far has obeyed the thesis. This is a very important time for all the analysis I have done over the past 6 months.

This post is devoted to the long term position, the position RLS tracks.  The shorter term trades (Wonderwood and Karate Monkey) are purely regression type trades for me: how far are we from the daily and monthly averages and how long has it been since we touched them (reverted to the mean). See Names of Trades Tab above, or click here. Those short term trades are designed to mine for points and thesis or larger structure is irrelevant. What you see on the amature blogosphere generally is people trying to trade shorter term trades while arguing about overall long term thesis. The two have nothing to do with each other. That is why most of the comments and arguments are really meaningless, silly, and like two ships passing in the night. They don't see each other.

You will not find this analysis any where. It is completely original .Whether that is a good or bad thing, is up to you. This is going to be a long post as this is tremendously fascinating to me. Before I start, as far as price goes, we await a break of the lower cyan colored channel to signal a break down and a correction is in progress. Here is the chart, which hasn't changed:



When I finish this post, it is my hope it will become apparent why I believe the information in the chart above is so elegantly simple yet important. All I need watch is that information in the chart above.

1.     Honoring the Bull Scenario.


As you can see from the initial chart scenario, the thesis believes that the November 2012 low is the key. We have been tracking this bull potential. Potential Bull Cycle, Click the Tab above, or click here.  This is important because it means that everything before the November 2012 low was actually the bear market correction from the 2011 top. This makes sense as the only people who did well during that time period were those who did not have a thesis and went long at the bottom of the chart and short at the top. Those who thought we were in a bull market kept going long at the top and suffering.  Those who were bearish kept going short at the bottom of the chart waiting for the cascade that never came. On March 31, 2013, I updated this with some various bull scenarios so we would know some possibilities. Map of the 2000 Wave, Click the Tab above, or click here.


Now, this is important. As I have been discussing, all this can be simplified to one single thought: If the November 2012 low holds, we are in a new bull market and the correction from 2000 (or 1998, wherever you choose to start the correction) is over.  If, on the other hand, it breaks, then we are likely in the deflationary bear scenario into 2014, which some of the various cycles have called for. I will explain this further with charts, but we have a clear 50 yard line, to use a football metaphor. Basically, if the November 2012 low breaks then we have another bear cycle (like the 2011 to November 2012 bear cycle). If bears cannot advance past that 50 yard line, their cycle ended in November 2012. Simple.

2.     Why do I think a bear cycle could have ended in November 2012?

Let's look at some charts I have been talking about to show why the bear cycle could be over. First, the cumulative volume chart:




As you can see from the above chart (and as discussed in the prior links above), the November 2012 low was the fractal end of the correction off the 2011 high. Price never cascaded, and instead triangulated, but the cycle ended. People get too focused on price.

What does that mean?  It means if that was the end of the bear cycle (i.e., the November 2012 low holds and we do not get another bear cycle into 2014), then this wave up off November 2012 is the very first wave of the new bull market. If you notice the time of the 2007-2009 correction also equals the time of the 2011-2012 correction.  Here is the chart again with further description:



Do we have other reasons to suspect that could have been the end? Yes. If you look at how hard the sell off was in that 2011-2012 wave down, you can see it was as hard a sell as the prior three sell offs (1998, 2003, and 2009). Thus it suggests it was a very important bottom. Here is the chart:



Having 4 strong bottoms like this is important if one looks at the last correction in the 1970s. Here is the chart and the BLUE DATES are what are important because they show that the 2011-12 low could have been the FOURTH AND FINAL LOW in the correction:



So, it is clear to me that the notion that all that has ensued since the November 2012 low could be a new bull market. The very first wave in a new bull market. It has not stopped acting like that or like it is in fact such a new wave. This means all the bulls who are counting this with bias thinking they were in a bull market from the October 2011 low are wrong, and all the bears who think they are still owed a bear market are wrong because they do not realize they already got there bear market.

Do we have to be wedded to this thesis? No. The November 2012 low is the key. That is why I talk about that low. One simple line in the sand between (1) New Bull Market, and (2) One more bear cycle down into the 2014 cycle lows. Do we know which path our time dimension will choose?  No.  That is why this is fascinating.

3.     Where do we go from here?

Well, if this wave up off November 2012 is a wave 1, we would expect a wave 2 to follow. Wave 2s usually, but do not have to, deeply retrace the prior wave 1. A wave 2 retrace should convince all that the bear market has returned. After retest, the wave 1 low holds and a powerful wave 3 up would ensue. This is why if the November 2012 low holds a powerful bull move would ensue. Does it have to deeply retrace wave 1, no. Do probabilities favor such a deep retrace, yes. That is why I anticipate a deep retest of the November 2012 low before we find out if the bull market is in. Am I positive we will get a deep wave 2 retrace, no.


4.     How do the cycles fit in with all this?

This is where I really find this interesting. This is going to seem a bit hokey and "new agey" but bear with me.

First, we had the support to within 1 point of the January bottom in this bull cycle with our fractal:



Second, to buy that 1399 support, we had to go against "price" on our long term cycle.  Here is long term cycle chart:





The cycle chart above shows an end date of May 10/13. Remember cycles are time and not price. This cycle is taken from 2007.

5.     The Wave 4 Cycle.

Now, when we neared some price confluence in March 2013, we then ran various cycles in anticipation of a long wave 4. They end around the same date (May 10/13) as the cycle above. Why did we think we needed a long wave 4? Because the ideal structure in an impulse is 5 waves and we believe even under the bear scenarios that the move up off the 2012 lows is an impulse (5 waves). In an impulse, the wave 4 is usually out of proportion and longer than the prior wave 2 correction up.  In addition, a wave 4 usually breaks the channel prior to the wave 5. If you look at the very first chart in this post--the price channel chart--you will see that we broke the channel before regaining it. That is why I think we are now in the final wave 5 up off the November 2012 low, which will be followed by a correction to test that November 2012 low (bull cycle if it holds, bear cycle into 2014 if it breaks).

On March 11, we first unveiled the Wave 4 fractal: Initial Wave 4 Fractal Cycle Post, but noted that NYSE had not yet hit its ideal target for that fractal to commence.  On March 15, 2013, the NYSE hit the ideal price point for the Wave 4 to begin. March 16, 2013 Wave 4 Fractal Cycle. Here are some other updates of interest: March 23, 2013, Wave 4 Fractal Cycle Update and April 1, Wave 4 Fractal Cycle Update.

Here is the initial structure of the Wave 4 fractal proposition:



You can see, to my surprise, it ended on May 10/13 (now the 16th) like the prior larger fractal. I also ran it a separate way by smoothing it out with a couple other analogues.  Here is the Smooth Cycle:



We are now close enough to those cycle turns that I added the final long term short position on Friday in anticipation of an eventual revisit of the November 2012. May 3, 2013 Update.

6.     What is interesting about May 10/13?

As I always do when long term cycles have an end date, I researched what is interesting about the end time my cycles are showing. This is interesting. Not a reason to enter a trade but interesting. If you were around in June 2012, you will remember in the weeks leading up (during the original RLS) I was constantly posting about BUY THE VENUS TRANSIT, which occurred on the exact date of the low: June 4, 2012.


Well we have a bit of potential confluence on May 10/13.  May 10 is the New Moon, which often marks monthly cycle tops. It is also an annular solar eclipses in the Southern Hemisphere, which can mark turning points in the market. I am not convinced this May 10/13 date will hit on the nose like the June 4, 2012 date, but we are in an interesting window. I also would not be surprised if it did mark the top to the exact date.

Now, here is where you think I am crazy. Please don't. This is interesting though I have not back checked it. There is some crop circle analysis that shows a 52 year cycle from 1962. Here is the article: Crop Circle Article. I will let you read it for yourself. It shows 1987 as the midpoint in the cycle. It has May 10, 2013 as an important end time in the cycle. It also has August 7, 2013 as potential important date (I will discuss that date when we get to August). What is interesting about 1962 is there was a flash crash in 1962. 1962 Flash Crash Article. Likewise, I think we all remember there was a significant flash crash in 1987.

So, I have 2 different fractal analogues showing May 10/13. We have the New Moon confluence. We have the Annular Solar Eclipse Confluence. And, we have the crazy crop circle article confluence. That is why this time period interests me. It was only after my analogue cycles were showing May 10/13 that I looked up the date and found the other confluences. Now, I would not trade off this information, but I find it tremendously fascinating. The confluence would suggest that a retest of the November 2012 low is possible here. So too do the structure of the price chart. If not, perhaps we look to August 7 and its strangeness (I will do another post).

7.     Conclusion.

All I can do is analyze data and logically come up with my best conclusion.  My conclusion is that sometime between now and the May 10/13 time frame, this final wave up off the November 2012 low will complete and we will begin a retest of that November 2012 wave up.  This wave 2 retest of the November 2012 low will likely last at least into June 2013. I will end the post where I began because it should all make sense now:




May 4, 2013.
SoulJester
Peace. Om.