Long Term Cycle Levels Respected
Classical Long Term Cycle retracement bounce levels in which the primary downtrend trend remains in place are commonly measured by the so called Fibonacci Ratios of a minimum of 23.6 percent and a maximum of 61.8 percent bounce. Last Thursday’s Dow high was a 60.6 percent retracement of the 2008 to 2009 crash and the S&P’s bounce was 60.2 percent (The S&P 2008 high was 1576, 2009 low was 666, for a decline of 910 points. The subsequent move to 1214 was a 548 point bounce equalling 60.2 percent).
The Nasdaq Cycle high was back in 2000 and has only retraced some 30 percent. These calculations are based on the bounce move as a percent of the down move.
The market now is looking at minor cycle down retracements of the previous long cycle bounce. For the S&P we will start with a 23.6 percent retracement which will take the market down to 1085 and a 38.2 percent retracement down to 1005.
Most trend following systems are still pushing the long side. As such the next important point in the markets will be as these systems break down.
One other point should be mentioned. Commodities and gold. As most of the market’s rally over the past 13 months has been based on economic recovery, there have been high correlations between the stock and commodity markets with the end result being that most markets reached over-valued levels.