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August 22, 2011
TODAY'S MARKET FORECAST COMMENTARY
Short term and momentum cycles showed a bottoming pattern deep in the lower reversal zone on Friday, while the NASDAQ closed at its Aug. 11 lows, and the Dow neared that level. With the 5-7 day cycle which should be at its bottom as well, indices are at a point where a relief rally is finally going to develop today.
But don't count on it lasting too long or becoming too strong. We still have a declining long term and 70 day cycle working against the rising 34 day cycle on the indices. In such a volatile environment, relief rallies are expected to be short lived. And though rallies can be explosive, they would be considered counter-trend to the long term cycle at this time, and as such, would find strong resistance at critical averages, and most notably - the 5 DMA.
Just as we saw during the severe intermediate decline that started on July 27, each intra-day rally attempt though it may have appeared strong momentarily, stopped dead in its tracks once it ran into the 5 day moving average. That 5 DMA is likely to remain the trigger for short selling, and unless a short covering panic were triggered, markets will have a hard time closing above that level.
Should a rare break above the 5 DMA line occur intra-day, it would have to CLOSE above that level to signal a stronger reversal that might be underway. If that were the case, markets would also quickly exceed the 14 DMA as well, but look for even stronger resitance on the move at the 30 DMA.
MARKET FORECAST GRAPHS
FILTERED CYCLE CHART
In the following chart, we show four currently active cycles on the Dow, whose slope and timing help indicate future direction. Currently, we see that the longest 70 day cycle (magenta) is trending down, and not due to bottom for a couple of weeks. Joining it in decline, is the 7 day cycle and the 20 day cycle which is just now topping out. The combination of those down trending cycles should keep the markets weak near term. The 34 day cycle (dark blue) is the only cycle on the chart that is currently moving up, but it can only counter-act some of the weakness of the other cycles at this point.
OTHER CHARTS AND FORECAST INSTRUCTION
There are many more instructive charts and market commentaries available each day on the site, and a live webinar each Friday at the market's close. Try our site out and see for yourself how valuable it is to know where markets are moving over the next several days and weeks.
