The SPX reversed direction in Friday’s session, here opening gap higher with the futures – continuing with that strength right into late-day with the eventual tag of 1362.17 – also closing at near the same. Overall volume came in at an expansion from prior levels. And, coming on a day where a higher high was in fact registered, this is viewed as a bullish indication in regards to technical action.
From the cyclic table above, the 10-day cycle is now seen as 4 days along and is regarded as bullish. The larger 20-day cycle is also seen as 4 days along and bullish, while the larger 45 and 90-day waves are each seen as 19 days along and are still labeled as bullish at the present time.
In the notes from the prior daily outlook, the upside ‘reversal point’ for the 10 and 20-day cycles was any intraday push above the 1335.16 figure on the SPX. With that the index opened firmly to the upside on Friday, taking out the same in the opening minutes of the period – thus confirming that both the 10 and 20-day lows were registered at Monday’s 1309.27 swing bottom. In terms of time, the average rally with the smaller 10-day wave is normally around 5-6 days off the lows, implying higher numbers into early this week or beyond.
Stepping back, as noted on the recent correction phase, the 10 and 20-day cycle downward phases were favored to see a drop back to the 18-day moving average or lower, which was easily met, with this average being hit on 6/25/12 (chart, below). Also, the current assumption for that downward phase was that it would hold at or well above the 1266.74 SPX CASH figure – thus forming the pattern of a ‘higher-low’ for the larger 20-day component. And, if correct, the probabilities would favor the 1363.46 swing top to be taken out on the next 10/20-day upward phase that followed - which we are now within earshot of doing.
Going a bit further with the above, when the larger 20-day component comes off the pattern of a ‘higher-low’, the average price rally has been around 5% off the bottom before the cycle re-topped. Taking the 1309.27 swing low, a 5% rally would favor a test of the 1374 figure or better in the coming days, which is right at or near the low-end target from the larger 90-day component to the 1376.97 – 1402.14 region on the SPX, which was originally triggered a week or two back. With that, we should be looking for a push on into this higher target zone in the coming days.
In terms of time with the above, the average rally with the 20-day cycle – when coming off the same pattern of a ‘higher-low’ – has normally lasted around 12 trading days (plus or minus), which – if seen here – would favor the upward phase of this cycle to last into the second week of July (i.e., around July 11th or later). Stepping back, we know that the 45-day cycle was projected to peak on or sometime after June 28th – but, ideally being made on or before mid-July, as about 80% of the upward phases of that 45-day cycle have normally topped on or before the 29 day mark.
With the above then said and noted, the next top for the 20-day component should end up as the high for the larger 45-day wave, with a particular focus on the second week of July to complete the same, with a plus or minus variance of a week or so in either direction. That is, this combination peak could potentially occur as soon as the new trading week (i.e., ibut ideally on or after July 3rd). Once complete, the next 20 and 45-day downward phase should take the SPX lower into around late-July (plus or minus), then to set up the next semi-important bottom with the same - with the 35-day moving average acting as a downside magnet– and also as potential support to that correction phase. More on the bigger picture assessment in a future article.