TL;DR
The CPI release on Oct 13 delivered huge volatility as expected with a big move down that served as a false breakdown to trap bears. Then the next day we got a massive red candle but importantly, we did not break below the low from CPI day which means we still have a chance to hold a higher low but the margin for error is nil.
The Daily Cycle
As of Friday the daily cycle count is somewhat unclear. This is because Friday’s big red candle did not make a new low so we have the possibility that day 27 (CPI day) will become a daily swing low and our DCL on day 27. We will have to observe the price action next week and the good news is we are set up to open as an inside week so we will have very clear levels that we need to hold. Speaking of levels that need to hold, we need to remain above the low from Friday to have a chance that day 27 was the DCL. Importantly, the higher time frame price action continues to indicate we are declining into the three year cycle low so even if day 27 is the DCL, it is unlikely it will be a very durable “bottom”. In fact, we would expect the next weekly cycle to be left translated and fail. More on that below.
Current Count: Day 28
Previous Daily Cycle Low: Day 54 (9/6/22)
Current DCH: Day 4 (Sept 12)
The Weekly Cycle
This past week was week 17 and we made another new low on the weekly chart 3491.58 because of the volatility on CPI day. We ended up with a weekly candle with a lot of lower wick which means we are likely to open as an inside week where we remain inside the range from the previous week. In this case that’s a huge range from a high of 3712 to the low of 3491.58 as mentioned above.
This means we could get very choppy action early in the week similar to the choppy action from Oct 10-12. The foremost question now is if day 27 was a DCL and if that DCL is also an ICL on week 17. It would be perfectly reasonable to see an ICL around here given the timing and could set up a rally for a few weeks before another big plunge. Given we are declining into the 3 year cycle low, we expect the next weekly cycle rally to be left translated and failed so that is something to be on guard for if we do begin a rally.
Current Week: 17
Previous Intermediate/Weekly Cycle Low: Week 16 (6/17/22)
Current ICH: Week 9 (8/15)
The Long Term (3 Year) Cycle
In the last edition I mentioned: “We have 3 red down (lower low) quarterly candles in a row for the first time since the Global Financial Crisis between 2007 and 2009 and as this quarterly candle continues to develop we will see if it also ends red.” We now have a red monthly and quarterly candle. There is obviously a lot of quarter left to trade but all signals continue to point to the fact that we’re in a long term cycle decline and the final low is months away at best. In this case, the expectation is we are nearing the 3 year cycle low which may conclude sometime around Feb/March 2023.
Also note, we are now meaningfully below the low from 2021. Which is to say, we are forming a swing high on the yearly chart (each candle is a year of price action). This is a very bearish signal to see on such a high time frame and is something to continue to pay attention to. This is another piece of evidence that we are in a long term cycle decline and have been since January of this year!
Current Month: 31
Current Long Term Cycle High (LTH): Month 22 (Jan. 2022)
Approximate Cycle Low Timing: March 2023
Conclusion
The long term trend is very clear as we are making lower lows and lower highs on all time frames. There will be bounces along the way but we are currently trending lower so those bounces will be selling opportunities.