September promises to be interesting as several long-term technical setups can create significant moves. The methodology, described in the September 2006 and May 2007 issues, utilizing Fibonacci/Lucas numbers as an important third time element show something big may be at hand. As of this writing, the markets had traced out a high in July in the ’89 trading bar window with the March 14 pivot low.
The S&P 500 also made a virtual double top 382 weeks (Fibonacci derivative 38.2) from the March 2000 high.
The markets attempted to trace out a low in the week ending Aug. 3 with the Nasdaq not confirming the S&P break. That week was 261-trading days off the July 2006 bottom.
As the calendar turns from summer to fall, the time cycles are beginning to come in on the weekly frame. The beauty of these cycles is they act as leading indicators and it doesn’t matter whether we are making a high or low into the time window. It’s important for you to recognize the setup and be in a position to take advantage of it. Let’s look at the possibilities.
First of all, in the period from Sept. 4 to 21, the markets will be in the 160- to 162-week cycle off the important August 2004 pivot low. The period from Sept. 24 to Oct. 11 will be in weeks 260 to 262 off the bear-market bottom in October 2002. These major Fibonacci derived time cycles are high probability turn windows in all degrees of trend. The S&P 500 close-up (see “A change in the air,” below) of the weekly action gives you an idea how these clusters (60/62/160-162) can play out as the October 2005 pivot made a low 158 weeks off the 2002 bottom and also clustered 61 weeks after the August 2004 pivot. As you can see, week 160 offered a very bullish candle formation that resulted in a breakout.
Two important cycles of this magnitude usually cluster like this once a year. That this comes right at the autumnal equinox makes some kind of reaction even more probable. Many times, important turns in the market come within several days of the change of season. This year is even more magnified as these rare cycles on a weekly basis are lining up at the same time the markets enter the 60- to 62-month window with the October 2002 bottom.
If the markets continued to sell off throughout August, this September time frame could create an important turn, either a low or secondary retest of the high. When you consider the S&P 500 cycle precision at the July high, there is a reasonable chance that high will still be standing in September. However, it is possible other indexes such as the Nasdaq could still hit a higher price target on any retest. If that were to materialize, it would set up a bearish intermarket divergence.
The best way to take advantage of these time markers is to combine them with candlestick methodology. When using candlesticks, the most important formations usually come near important support or resistance lines. When we get one of these candle formations near support/resistance and it also happens to be in an important time window, the odds of a reaction are much higher. Watch the weekly bars to see if an important candle traces out during this time frame, then scale down to the daily bar for greater precision. As it turns out, Friday, Sept. 21 happens to be in the 47 (Lucas) trading bar window with the July high for the S&P 500 and Nasdaq just a couple of days later.
If there is to be an important reversal that week, Sept. 21 is the highest probability outcome with the information available when you read this. It will be fairly obvious by then which way the market is heading into the window. If we are topping or making a secondary high, the candles leading into the window should all be bullish and sentiment euphoric. If we are bottoming, it will be the opposite. If we are going sideways, it will probably seem like nothing is ever going to happen. Don’t front run the candles; wait to get confirmation on the next bar. If you do that, you will be well positioned to take advantage of whatever opportunity the market makes available.
Jeff Greenblatt writes the Fibonacci Forecaster column which appears every Monday on Futuresmag.com. He is also the author of a new marketplace book, Breakthrough Strategies for Predicting any Market. His Web site is www.fibonacciman.com and can be reached at email@example.com.