Thoughts on the current 3,5 year cycle

When SPX made an ATH in the first half of 2019, and a higher low around August, it signalled per my definitions that the 3,5 year cycle low was in, and we got a projection of the next cycle high around fall-2021 with a price around 4.500 +/- (with a possibility of a bullish extension into summer 2022 and a somewhat higher price). This was looking like a blow-up phase of the longer trend.

So the 2020 covid-crash was very unexpected per these definitions, and if it “wasnt supposed to happen” we should see a quick return to the “planned” path… which we have. The covid-crash has however made some mess with the shorter cycles. It was supposed to be only a 26week low, but turned into something worse, and it made the 40week cycle low very early (should have been ~June, not March).

So we are back on the projected course, and it may look something like this:

Scenario 1: we are at historically overbought level. Looking at my Norwegian index and historical data since 1983, we should make a top within no later than 5-6 TDs, and get at least a 5% correction into a 26week cycle low around August. Something similar with the SPX. Then another rally probably to new ATHs around October (+/-), and then the 3,5 year cycle has topped out and the price-action during the next cycles will give us a clue about what kind of low we are heading at.

Scenario 2: if we see weakness from here and extending into the fall, that may be a bullish consolidation, allowing this 3,5 year cycle to rally into summer 2022.

So “weakness” the coming months may be bullish, unless the weakness is really bad (real weakness in price and not consolidating). And more bullishness after a quick correction may be “bearish”…
Anyway, the critical period in distinguishing these two scenarios seem to be around Jan-Feb 2022 (what kind of weakness do wee see there)

But first… lets see if we get some kind of parabolic move the next ~week, or some kind of topping formation, or even just “crashing down”. I favor one week of flattening/topping.

:slight_smile:

Scenario 2 doesnt favor a very bearish 3,5-year cycle low, and if this really is a blow-up phase of the longer trend, we should see scenario 1 and a somewhat more bearish extended action possibly well into 2023.

There is a ~30TD oscillation, and I find it much easier to identify in the Norwegian market. Here is the situation: The previous wave behaved bullish (see the green typical wave overlay), and the next one started a bit early.
But the next one is showing signs of “sabotage” or weakness. I have overlayed two typical bearish scenarios, and we are not following these excatly… but that is normal. There should still be some time left in this bullish phase where the wave still will try to rally, but if the next swing also is weak, we are set up for a correction

Here is the longer term for Norway. It has been a very unusual long series of 30TD-waves without a bearish one (correction).

And my cycle-count and scenario:

The setup for a correction in Norway shown above is still alive, but favors a couple more days of upside. And Norway wont go into correction unless SPX also does.
I find it generally more difficult to interpret SPX at tops - it tends to grind up on overtime, and then snaps violent to the downside. SPX is also getting close to an overbought setup for a correction, but some more parabolic to the upside is possible the coming week.

Both Norway and SPX is at historically overbought levels in my data, and there are not many similar cases to compare with. Here is one for SPX - TDs between 30 day lows (lowest point 30 TDs back and forth). The numbers in the diagram shows the day when SPX topped, and as you see there are only 5 comparable cases since 1950: two topped about now (we are on day 199) and three topped 25-30 TDs later. And above I mentioned a ~30TD oscillation. So this could suggest that we either get a correction now in the current 30TD oscillation, or from the next one topping late in August. My cycles would allow for both these alternatives, but I still favor the top to be in July, and a correction into August.

A correction now will have a minimum downside target below 4160. I also have some MAs around 4100 that should be breached. Dont use fibs that much, but right now there is a fib-retracement from Nov-lows at around 4100.

Think I only can have three replys in a row - so someone please make a reply so I can make further updates :slight_smile:

Added: ok one more thing. There is a ~4 week cycle (not the lunar). Sometimes it is hard to see (because for instance Norway shows a ~6 week oscillation).
Here are the cycle lows for SPX. See what action we sometimes get at correction highs in the SPX. We often see some kind of invertion, extending, or merging of two cycles. Right now we are near the cycle low, but the low last week was a bit early and very quick. So if we try to rally a new cycle, without “letting out air” first, we could get such a topping setup from this cycle.

Thanks very much for your thorough and well-presented work, Sunchild!

Encouraged by your work and by others on this platform, I would like to present, for what its worth, some of the, as far as I can see, partly similar ideas I have been working on.

The case for a 7- and 3,5 year cycle

Looking at the chart of figure 1, I think there is indeed a case for a 3,5-year cycle and thus for a 7-year cycle back to at least 1953. I hesitate to write that, keeping J.M. Hurst’s excellent work with the 18 - 9 - 4,5 etc. year cycles in mind.

In Figure 1, I have arbitrarily pinpointed the 7- and 3,5-year cycles on basis of the S&P500 semi-logarithmic chart, but also on basis of the % distance of the index to the 200-week Moving Average (a kind of detrending) and the 9-week RSI. In accordance with Hurst’s “Principle of Variation”, the duration of the cycles that I have pinpointed vary between 228 weeks (4,4 year) and 458 weeks (8,8 year) with an average duration of ca. 360 weeks (6,9 year). Keeping this average of 360 weeks with a variation between 228 – 458 weeks as a guide there are the following possibilities:

1. The very short 7-year low of 220 weeks was reached in March 2020

Although I keep this possibility in mind, I assume that we still have the 7-year low in front of us, because:

  • The S&P500 is now > 40% above the 200-week Moving Average. This is by no means a historical high value, but still high for such a big index. Of course, it may be argued that, since 1950 up to now, the index was 4 times ca. 60% above its 200-week Moving Average.

  • The RSI(9) is consistently in a divergence mode with the index since 2018.

  • The resistance-line of the green upward trend channel since 2009 has (almost) been reached. A permanent upward breakthrough is of course always possible, but in my view the chances are higher that the index is falling back after reaching or, or in a throw-over, shortly surpassing this resistance line, like it did already many times before.

Note: I think the steep trough of March 2020 was the 3,5-year low, of which the extreme proportion was caused by the Corona shock.

2. With the average length of 360 weeks, the low of 7-year cycle could be reached in the last quarter of 2022 – first quarter of 2023.

3. With the maximum length of 458 weeks, the low of the 7-year cycle could be reached in the last half of 2024.

The case of the 14-cycle

On basis of the “Commonality Principle” as described by Hurst, the 14-year low should be time synchronised with the 7- and 3,5-year lows. If we assume that the 14-year cycle bottomed in 1932, the last 14-year low was in 2016 and the next will be in approximately 2030. In that case the 7- and 3,5-year low of 2023-2024 could be a shallow low, corresponding with the 23,6% and 38,2% retracement levels from the lows of 2020, or in an extreme situation, of 2009.

Thinkable targets if the S&P500 index falls back after reaching the resistance line

For the case that the 7-year low lies still in the future, in figure 2 possible Fibonacci retracement levels are presented, starting from the March 2020 low. If it comes to a fall-back scenario indeed, in my view the 23.6% resp. 38,2% retracement levels could be first targets at approximately 3.900 resp. 3.600 points. Of course, a bigger correction is possible as well, e.g. 50% or, as already mentioned, in an extreme situation on basis of a retracement from the 2009 low.

The Charting platform used for the two charts in this analysis is provided by TradingView.

On holiday and not updated my sheets. Norway is about to complete my bearish setup. Not able to find breakout momentum. Must give it 1-2 more days, but could start correction any time now

Setup complete for Norway… now I have to see weakness to Get confirmation…

It looks like the nominal 18 month cycle may end around August 6, 2021. The 31 (green) and 50 (blue) trading day cycles point in that direction.

Bearish setup confirmed in Norway. I also see a bearish pattern in SPX, but need to see more weakness to confirm. Very high probability it will materialize. I get projections for ~3weeks downside from here… to be evaluated as it goes on.

Bearish scenario for Norway going ok, but next few days critical. Thursday should be end of bounce, and real bearish period begins around Friday. SPX is crazy and why I dont trade it. If however it breaks to new highs, the scenario for Norway is likely to fail.

Looks like the low has come and gone on July 19, 2021 and not later. The norwegian market should follow suit.

I haven´t seen a low of the required magnitude for a “6-month low”. I could illustrate this in several ways, but here is by some trendlines. First when we see a pullback with follow-through beneath the trendline, we can trust it to be such a low.
Now we could make a double top next few days (but I dont “like” them), or we could make a marginally higher high in the coming week. But if so, we should soon get another setup for a top. And first after such a low we can see new real buying momentum (imho)

soon off to my next vacation, but here is another update :slight_smile:

As shown above, I have several indicators telling that this rally is only comparable with some 5-10 cases since 1950. The one indicator I showed (based on very few data) suggested that we may top in July or in August (and then make a 30-day low). I thought July was the top, but now it looks like August.

Around 1998 a 25-week cycle appeared in the markets, becoming the dominant cycle over the 40 week cycle (that is still present). The 25-week cycle made a shift around 2003 and was stable until around 2013, where it made another shift. Then it became a bit less stable, and looks like the 40-week cycle gained some power. In 2019 the 25-week cycle made another shift.

But at the moment I am not sure if the 25-week cycle has stabilised, or if it has become a 26-week cycle (the avrerage since 2013). And a 26-week cycle would just mean a seasonal cycle.

So for the moment I am watching both these alternatives.
Here is the seasonal cycle since 2014 - it has been telling me that the rally may continue until August

I am also watching the market shifted by 25 weeks. That has been telling me that the top could be expected sometime between this week and 3 weeks ahead:

I had a very good setup for a top last week, but that failed this week. I have seen this before. Just looking back some years I find two examples:

Here I have synched them at the last squeeze:

So summing all this up: It now looks like we have a squeez-extension of the rally that could last about 10-15 more days, and from the 25-week oscillation and seasonal cycle it was probably to be expected.

So from an August-top we should see a correction with follow-through below 50MA.
That top may be the momentum-top of this 3,5 year cycle, but there should be another rally to new highs that may be the final price-top (and if the market is robust around Jan-Feb 2022, the cycle may extend to summer 2022)

From the behavior of past equivalent phases, the price can
make a 1-day spike to a new high top–then proceed to drop vigorously over a few days to lower lows.—
Blue arrows.

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Norway (and Germany+UK) are not making new highs. Are setting up a possible lower shoulder.
For Norway I see a swing-high around the close tomorrow Friday, but a good setup for a completed shoulder is another swing high in about a week, and that swing-high should not be much higher than tomorrow.

This is very similar to the possible setup for a top in SPX. I see a possible swing high around tomorrow, and about 5+ TDs of sideways action before the correction begins.

Scenario updated:

Not sure what today ment for the setup. Could be weakness, or we get the swing-high early next week.
Anyway… I added the Jan.2021-setup in my comparison, allthough it is not quite the same setup, but it has similarities.

At this point I dont look to much at my cycles, but focus on patterns. I know there should be a correction soon, and this is the current setup. I do expect the market to hold up until the job-numbers next Friday, but soon after those the rally should be over for now (unless the top is before the numbers).

We have to see if this setup also fails… anyway it feels to early for downside.
If the setup is correct, we could see a typical ~4 week correction with a low early September.

Setup maturing. I was looking for three small waves in this topping formation/flat top. Nr 2 topped a bit early last Thursday (expected it around the next day). And now we are at the last nr 3.
Ideally I would like to see a fake break up from the current range, with a top Friday/Monday, before the correction should start.

I dont have very precise timing-tools for SPX, but I do have for Norway.
In July we got another failed correction-setup, and we have another wave in uptrend.
This wave is now near its projected top, and we have made a marginally new ATH.
None of the pullbacks since October has met the normal requirements for a 6 month low - like two consecutive days below 50MA, or below 70MA, >5% retracement and so on. This is unprecedented.

Anyway, there is a now a correction setup that requires some weakness beginning early next week. We should see a 3-4 week correction into September. I expect higher highs in Oct-Nov, and then the period around Dec-Feb will decide if this 3,5 year cycle is topped, or if it extends into summer 2022.

It has been a long series of failed setups for a correction - a historical long rally.
We are now in yet another setup for a correction, and this one looks “promising”.
I was looking for a ~August low and a Oct-Nov high that could be the final bullmarket (3,5 year cycle) high.

But we are now in the range where top top allready may be in.
My ~6 month cycle has not been reliable, so then I look at the 40-week cycle:
The March.20 low was a bit early (~June would have been more right)
The next cycle low was March.21 and near the ideal low
The next coming cycle low is early in 2022 (which may be later if the market is bearish).
And if we have a bearish/left-translated 40-week cycle, we could be very close to the top now.
it is however very possible for some sideways action in Oct-Nov if we get a correction now in Sept.