The Elusive 20-Week Low

If you combine cycles with some context, you can get a reasonable idea of where a given cycle might peak and bottom. Having said that, cycles are somewhat secondary to the primary math of the Navigator Algorithm, which favors price action more than any other factor.

Of late, most sell-offs have barely lasted a few days, much less a few weeks. So it is a change in and of itself to have the time to contemplate a projected low. 20-week and 40-week cycles are like that. We have more time to evaluate them. As previously discussed, the window for the low goes all the way out to March 15th.

I don’t see the “reflation” or “reopening” rotation as anything new. Chairman Powell’s testimony yesterday merely confirmed what the markets had already told us. So I ask myself, what did the market really want to hear yesterday? I can only suppose it wanted Chairman Powell to reiterate a vigilant policy to keep the money spigots flowing while maintaining artificially low interest rates. That cannot go on forever, and it would inevitably end badly.

Inflation is, after all, the greatest tax of all. It is the insidious tax increase levied by governments throughout history who could not pay the bills and had no political will to handle the matter honestly. Unfortunately that is where we find ourselves. $30 trillion in debt and rising, with no way to pay the piper.

The market will make its adjustment. I will carefully evaluate the rotation over the weekend for any hints of change. Then the market will move on again. Time wise, the bottom should be close at hand. Price wise, the S&P 500 Index tagged the 20-week future line of demarcation yesterday for the first time since the correction began. Reaching that line usually satisfies the sellers:

The task now is to confirm the intermediate low when it is firmly planted, and then we can take the next cycle from there. The price has met the minimum 20-week objective, so the question now is will that be enough.

I am always suspicious of news-driven sell-offs like yesterday, which are more akin to liquidation breaks than fundamental declines. It is a bit more complicated when a liquidation break happens in the middle of a correction already underway.

Since the NASDAQ 100 led us down, it should be the first index to confirm a low. I will be watching that carefully in the next few sessions.

Today’s Day Trading

I don’t typically day-trade on Fridays due to the complications provided by weekly options expiration. However, respecting the S&P 500 index, the Weekly Expected Move high and low are way out of bounds today, so they are unlikely to influence the market.

The employment numbers for February were better than expected, at 379,000 versus the consensus at 175,000. Remember, there is a sea change at hand. Good economic news is now bad news for the markets because it could mean more inflation, higher interest rates, and a potentially unfriendly Federal Reserve soon.

Yesterday’s regular session represented a breakdown from balance. The low end of the previous balance area had been about 3805. Acceptance above this area puts yesterday’s breakdown into question and has the potential to reverse the current negative tone as more buyers join a rally.

If the open is faded and there is no further advance into the balance area above 3805, then the bears likely retain control for now. Other key levels are the overnight high at 3782.50, settlement at 3772.25, and the overnight low at 3720.25. Look for the reaction at these levels, and monitor for continuation as the market breaks them either higher or lower, as the case may be.

A.F. Thornton

The Elusive 20-Week Low

AF Thornton

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The Elusive 20-Week Low

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