mcm Market Update For Week 38

The FED week was a good omen for the bulls and the market finally managed a small break-out above the choppy range in which it was stuck for a few weeks already. We had several short term cycles break into up impulses on mcm, which provided early clues about this ramp.

Coming back to the big picture, the weekly cycles show a dangerous development for bears. The back-test of the 2105 break-out level appears to have held. The market bounced from there and if it will continue to go higher that will be a situation in which shorts would have to be patient for quite a while. YM continues to underperform, however it bounced when it met the mcm-MA and now managed to get above the broken resistance also. The bears do have one more chance and that would be to reverse this bounce rather directly. The fact that the directionality tool is still heading down is also a sign that the back-test is not decided just yet.

Weekly Cycles

Weekly Cycles

The daily cycles are the reason why we are not fully in the bullish side just yet. They unwinded the big up impulses started back in March. YM completed that unwind (with a 3rd END resistance), while ES only had a 2nd END and could still (theoretically) get a 3rd END. In the mean time, they broke below support and actually started down impulses, although now the price came back above that support. So bears have 2 options here. One would be a direct reversal, which would mean the back-test of the previously broken support held and the down impulses are confirmed. That would be very bearish. The 2nd option is for the market to go higher and reverse after ES triggers the 3rd END resistance. As we can see on YM, that 3rd END doesn’t necessarily require a lot of upside to trigger. Once that happens, reaction to that resistance will be critical. If the bullish scenario on the weekly is to be confirmed the market could break into a nested impulse on the daily. But the normal expectation is for downside from there. As always, the shorter term cycles will provide early clues into which scenario will play out.

Daily Cycles

Daily Cycles

The Elliott Wave projection of the NYSE is also pointing to a crossroads with regards to market direction.  With minimum expectations of the structure being met, waves one and four overlapping, the market is free to do as it sees fit from here.  The duration of the fourth wave seems to be lacking taking into consideration that from a seasonal perspective, most bottoms aren't put in place till sometime on or after the second week of October.  While the projected paths are very insightful as far as targets and bias is concerned, the fact that markets don't go in a straight line as the projections do makes for a challenge.  Keeping that in mind, although we've bounced in what appears to be the final leg up to new all time highs, there is a very good potential this is just a counter trend move that has the potential to bottom at 'or 2' into the month of October.  Best to your trading this week.

NYSE Composite

NYSE Composite

MCM Newsletter – Outlook for Week 30 May – 3 Jun

Executive Summary:
Main Trend (weekly): neutral
Intermediate Trend (daily): up
Short-Term Trend (480&288min): up/neutral
The initial decline from the triggered resistance level on the weekly cycles has stopped when it tested the mcm-MA and the market managed to bounce from there. Now, price is close enough to the resistance level to be considered a back-test (highlighted on chart). What happens here will be key for the main trend direction, with the normal expectation being for resistance to hold and market to have a more pronounced correction. As it can be seen from the previous resistance levels, it would not be totally unexpected for the market to either head directly lower or challenge the resistance a bit more before that. The directionality tool should be watched closely for signs of down movement as well. Interesting is that YM is underperforming ES, being about 200 points below the resistance level, while ES is only 7 points.

Weekly Cycles

Weekly Cycles

On the daily cycles, we can see that the mcm-MA on the weekly also had help from the daily when it held. Namely, the market back-tested the bullish retrace (BR) support which had triggered a while back. That back-test showed that not all is as bullish as everyone thinks since the support held with difficulty and was spiked below. However it did hold in the end and market bounced strongly from there. Now an END resistance to that BR could trigger basically any time at these levels. It can also be seen even better than on the weekly cycles how significant is the YM underperformance - while ES went clearly above the previous high, YM did not and is in that general area. The mcm-MA on YM also turned red and we started to get some LRE (lower risk entries) for shorts. As previously said, once that END triggers, that would signal a possible unwind of the up impulse and in the context of the weekly, a larger down move would be expected. There is also the option that a 2nd BR will trigger and require a 2nd END, which would need more back and forth movement before the bigger correction.

Daily Cycles

Daily Cycles

The 480 and 288min cycles show the effect of the big move we had in the past 4 days. 480min actually broke into an up impulse, while 288 had a larger regular wave which triggered resistance at 2092.75. Considering the up impulse on 480, if the market sustains the move past this level and starts an impulse also on the 288min cycle, then we would have to acknowledge that the bounce would have further to run. However, the resistance on 288 might still hold, despite of it having been spiked briefly, so keeping an eye on that level in the next few trading sessions is important.

288&480min Cycles

288&480min Cycles

Weekly Cycle Charts Explained

First some basic information about interpreting the cycles:

  • cycle movements are like waves in nature. The stronger the wave, the more dissipation is needed to release the built-up energy
  • there are two types of waves: "Cyclic" and "Impulse"
  • a magenta line is indicating the peak of a cyclic wave, otherwise said, a resistance level
  • a cyan line is indicating the bottom of a cyclic wave, or a support level
  • a cyclic wave generates a bottom at a cyan line and correspondingly, a top at a magenta line
  • the green line (which turns red in downtrends) is the MCM Moving Average
  • a cycle impulse is confirmed once the price AND the MCM MA move either above a magenta line for an uptrend or below a cyan line in a downtrend.

The current trajectory of the weekly cycle chart on ES is a perfect example of how powerful a cycle impulse can be and what is the typical behavior.

Weekly charts

At point “A” the price moved above the resistance (magenta line) indicating a possible cycle impulse up in the making. At point “B” the MCM MA moved above the resistance (magenta line), confirming the cycle impulse. Once a cycle impulse is confirmed, it usually back-tests before really taking off. This happened almost perfectly at point C, when price came quite close to the magenta line and previous break-out. After that it was clear sailing, with no signals generated to indicate a turn or potential change of the main trend. At point “D” a Bullish Retrace (BR) was triggered, which normally needs an END to finish. The BR and subsequent END higher indicate that the cycle impulse might be coming to an end. Typically an END is enough on longer time frames, but it is common for also 2nd END and 3rd END to trigger. In our case the BR triggered at point “D” had an END, then another BR triggered and 2nd END and at point “E” we had the 3rd END. At that point, the cycle impulse was finished. The price went lower, a cyan support level was generated and broken, turning into a cycle impulse downward at point “F”.

The Dow cycle chart is a bit different, although it moves very much in sync with ES. Dow was already in a cycle impulse upward and had a 3rd END generate at point “G”, which coincides with the timing of point “A” on ES. The price broke above, the MCM MA also, and that became a nested impulse up. Dow had an earlier BR and 1st END (at point “H”). After that it also had a 2nd END and 3rd END, which signaled the end of the cycle impulse. After that it generated a cyan line and a corresponding magenta line, which signifies a regular “wave”. Another cyan line was generated, which was then broken by both price and MCM MA at point “I” signaling a cycle impulse downward.

The Invitation

by Oriah - Mountain Dreamer

It doesn’t interest me
what you do for a living.
I want to know
what you ache for
and if you dare to dream
of meeting your heart’s longing.

It doesn’t interest me
how old you are.
I want to know
if you will risk
looking like a fool
for love
for your dream
for the adventure of being alive.

It doesn’t interest me
what planets are
squaring your moon...
I want to know
if you have touched
the centre of your own sorrow
if you have been opened
by life’s betrayals
or have become shrivelled and closed
from fear of further pain.

I want to know
if you can sit with pain
mine or your own
without moving to hide it
or fade it
or fix it.

I want to know
if you can be with joy
mine or your own
if you can dance with wildness
and let the ecstasy fill you
to the tips of your fingers and toes
without cautioning us
to be careful
to be realistic
to remember the limitations
of being human.

It doesn’t interest me
if the story you are telling me
is true.
I want to know if you can
disappoint another
to be true to yourself.
If you can bear
the accusation of betrayal
and not betray your own soul.
If you can be faithless
and therefore trustworthy.

I want to know if you can see Beauty
even when it is not pretty
every day.
And if you can source your own life
from its presence.

I want to know
if you can live with failure
yours and mine
and still stand at the edge of the lake
and shout to the silver of the full moon,

It doesn’t interest me
to know where you live
or how much money you have.
I want to know if you can get up
after the night of grief and despair
weary and bruised to the bone
and do what needs to be done
to feed the children.

It doesn’t interest me
who you know
or how you came to be here.
I want to know if you will stand
in the centre of the fire
with me
and not shrink back.

It doesn’t interest me
where or what or with whom
you have studied.
I want to know
what sustains you
from the inside
when all else falls away.

I want to know
if you can be alone
with yourself
and if you truly like
the company you keep
in the empty moments.

Our invitation is not nearly so eloquent, however, we invite you to some introspection regarding the markets, your trading and our non-correlated, objective and prescient tool-set. In an effort to increase discussion on the blog, comments to posts and participation in the mcm community we are offering for a short time, an invitation to join us and to learn to see "market things" in a new way, a deeper way, a more authentic, unique and honest way. 

mcm tools are not "see-ers" or random predictors, signals or neural networks that increase your frailty with each step. Every piece in our toolset reinforces the other. An MSP does not track is as useful as that that does because these are true probability analyses - not random guesses regarding the future or its potential. Similarly for emotional extremes with eTick-Tools, these are not lines on a chart but emotional capitulations where market participants are measurably stressed. Reactions at the areas are real and objective points to leverage the conviction and opinions of participants. Its the same with market cycles and our market internals - each look at pieces that no other analysis does in an effort to understand a deeper meaning - perhaps even what the market is like in its most empty moments.

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