Did the Sun Come Up Last Thursday? Now What?

Did the Sun Come Up Last Thursday? Now What?

S&P 500 Index 60-Year Master Cycle (click to enlarge).
S&P 500 Index 60-Year Master Cycle (click to enlarge).

Good Morning:

  • This year as last, the stock market (as measured by the S&P 500 Index) continues to follow our Master Cycle Forecast with a correlation of 89%.
  • The pressure forecast compresses the most important cycles influencing equity markets into a proprietary composite of one to 60 years.
  • Year after year, following the forecast alone leads to triple-digit returns. Our main requirement  is that the correlation stays above 80%
  • No strategy is flawless. When the correlation drops below 80%, the cycle tends to invert. The turn dates don’t change, but the direction of the Cycle does.
  • In such cases, Peaks will replace troughs and vice versa. We are always on guard for such a change; And that is where our Price Action indicators help guide us.
  • Beginning last Thursday with our proprietary Helio Algorithm, we entered a series of turn windows mostly associated with the nominal 20-week Hurst Cycle trough.
S&P 500 Index Helios Algo Buy and Sell Signals (click to enlarge).
S&P 500 Index Helios Algo Buy and Sell Signals (click to enlarge).
  • But did the Helios Algo deliver? Once in a while, if a “news” event intervenes, the market will temporarily derail. We saw that Friday with another surge in inflation as measured by Personal Consumption Expenditures.
  • But proving that the cause of market advances and declines has little to do with the news, the train usually gets back on the track.
  • You will have a chance to witness this in real-time. I always mark these temporary derailments on my chart as “news” lest they confuse me later when memory fades.
  • That is why It is imperative to keep a good trading journal to be successful in this endeavor.
  • So, for now, I expect the market to turn north again this week and advance through May, just as we forecast in our annual outlook.
  • And then the old saying “sell in May and go away” might be the new mantra. The market will stumble in May, and the bears may recover their footing.
  • We are still in our February 2nd sell / short signal. If you are short the market, I would cover positions sooner rather than later and prepare to go long again.
  • If we drop to half-day candles (see below), The market already has Algo and Momentum divergence buy signals if today’s price action closes at or above current Globex levels (4000 or above). These lower time frame signals don’t always follow through to the daily time frame, but it is a good ‘heads up” signal and plenty of reason to cover your short-positions.
S&P 500 Index - Half Day Candles - Shows Market Correction Bottoming (click to enlarge).
  • If the buy signal triggers today, the first test of the new advance will be the 2/21 breakdown at 4060.
  • The Trading Room will be open on Tuesday and Thursday this week.


AF Thornton

Website: https://tradingarchimedes.com

A.F. "Arthur" Thornton is an expert in logic, risk/reward quantification, market fractals, pattern recognition and asset class behavioral analysis with 34 years devoted to developing algorithmic and quantitative trading systems. In addition to trading his own capital, Mr. Thornton designs custom algorithmic and quantitative trading systems for a small and exclusive group of exceptionally qualified traders.


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