Tech talk: Cycles lead way

As noted previously in this space (see "Tech Talk," March 2007), 2007 may trace out a very meaningful cycle point. The August-September time frame has the potential to produce the most meaningful pivot of the entire decade.

For those of you who are new to this type of cycle analysis, most important

In the current bull market that began October 2002, August is the 59th month of the sequence. The S&P weekly chart (right) shows the progression of the S&P 500 off the March 2003 low, which was 23 weeks off the bottom and the monthly chart with the weekly bars superimposed. When we go back to the all-time high in the S&P 500 and Nasdaq, August is right in line with the 89-month high-to-high cycle. Scaling down to the weekly time frame, the first week of the month will be the 55th week window off the July 2006 low in most markets and weeks two to four will be the 60 to 62 weeks off the June 2006 low in the S&P 500. In the early part of September we will be in the 160 to 162 week cycle off the August 2004 pivot. By the end of September, all important indexes will be entering the 260 to 162 week cycle with the old bear market bottom.

As this went to publication, the markets were wrestling with important resistance at the June high. If we are rallying into August, it implies an important high for this time frame. While not the highest probability, if the markets elect to turn early, it could happen by the last week of August, this could also bring about an important fourth wave high. But, if the summer brings us an intermediate-level correction, these pivots could produce an important low. What usually happens is when we come to an important time cluster, the price action will confirm the cycle by tracing out a reversal candlestick formation, such as an evening star or bearish engulfing pattern. It is important to be flexible, see if an important candle is traced out in this time frame and use it as a pattern recognition methodology. In the very least, use them as a guidepost so you won't let the noise of the crowd cause you to do the wrong thing at the wrong time.