Your Economy (No Politics)

[Bullwinkle]

CYCLE Trend/Analysis Update for the Week Ahead

As mentioned in my previous cycle trend post with which this post replies, I was looking for extreme volatility. I do not believe last week qualifies as extreme, but we certainly had our share of ups, downs and sideways movement which could be better interpreted as range bound volatility. Either way, the market held up fairly well through Options Expiration and whether or not the trend reversal date of the 17th is in effect is still to be seen although a downtrend looks to be on the cusp of ensuing. There are a number of patterns playing out (both bullish and bearish), but before we get into that let's review last weeks Econ #'s...

Based on expectations (not the previous months data) we started out the week with Retail sales which came in flat, Trade Balance (or should we say "imbalance") moved further into the red by another -$3.3 Billion as well did the Current Account Deficit for Q1 by another -$4.9 Billion. CPI and PPI came in higher once again while the Core CPI was flat and Core PPI edged higher. The NY Empire State Index was a touch lower while the Michigan Sentiment preliminary # surged higher. Building Permits and Housing Starts rose slightly as well did Business Inventories, Industrial Production, Capacity and Utilization. Initial Jobless Claims fell by 4k (15k by the previous #) while LEI and the Philly Fed both moved higher.

While this weeks market data does seem to show an improving economy, a cloud continues to hover. The Governments inability to reel in deficits coupled with the 3 "I's" (Iraq, Interest Rates and Inflation) and it appears as though uncertainty and pessimism will continue for the unforeseeable future. On deck for the week to come we have Durable Orders, Initial Claims, Help Wanted Index, New & Existing Home Sales, Chain Deflator and GDP final #'s for Q1 along with a Michigan Sentiment Revision.

So what can we expect for the week to come? With Options Expiry throwing us a curve ball it is hard to tell what effect the widely expected turn date of June 17th will have. I for one believe we already got our turn back on the 8th when we made our last high of COMPQ 2023 and using that date you can clearly see that we are in a downtrend. Also when looking back to the May 17th turn and low of COMPQ 1865, it appears as though a small H&S pattern is just about finished forming with the right shoulder leaning in and touching the 50DMA and the 200DMA just below that forming the neckline for said H&S pattern.



Also the current candlestick pattern starting around the 15th looks like it could possibly be an Abandoned Baby or Evening Doji Star, both very similar patterns... The current pattern on the COMPQ is not text book as the 15th has a long wick and some overlap of the star, I still felt it was worth mentioning though.



Pattern: Reversal
Trend: Bearish
Reliability: High

How to Identify it
First day is a long white day, Second day is a doji that gaps in the direction of the previous trend and the Third day is a black day.

What it Means
In an uptrend, the market builds strength on a long white day and gaps open on the second day. However, the second day trades within a small range and closes at or near its open. This scenario generally shows an erosion of confidence in the current trend. Confirmation of the trend reversal is the black third day. The Evening Doji Star indicator is the fully realized bearish Doji Star pattern.



On the bullish side and looking back at the same 3 month chart above one can interpret a bullish pennant or triangle out of that same H&S pattern I had mentioned. If one were take into view the whole 3 month pattern one could also see a possible inverted H&S pattern with the left shoulder terminating on April 19th, the head being the low of May 17th and the right shoulder still being constructed. Last but not least there is what I interpret as a cup & handle pattern being formed and seen over a 3 year COMPQ chart with Jan'02 as an upper lip, the bottom of the cup from the Aug'02-Mar'03 timeframe and the handle forming since the Jan'03 highs.



On that note, everything presented is to be interpreted as one chooses. The patterns indicate a possibilty for the COMPQ to go either way. Uncertainty could very well keep us in a choppy sideways range bound action for the rest of the year, nobody really knows. It appears to me that the tops are in unless this huge cloud of uncertainty clears. We will have some ups and downs, but I do not expect to see any new highs this year. If we do see new highs I would welcome it with open arms, but I certainly won't be holding my breath.