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Selling Into the Cycle Bottom

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Cycle work in the S&P 500 points to continued downside into the end of the month, if not longer.

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Michael Paulenoff is the author of MPTrader ETF & Stock Trading Diary

My cycle work in the S&P 500 points to continued downside into the end of the month, if not into the first week of July. Today is day #70 in the 70-75 trading day cycle (low to low), with my Dual Cycle Low (20-25 day and 70-75 day) due to bottom together between June 27 and July 6.

Based on the juxtaposition of yesterday's reversal, today's downside continuation, and the dual cycles, my sense is that a new downleg started after yesterday's recovery rally high at 1298.61 that initiated the final period of weakness into the cycle bottom.

Let's notice that current weakness is retesting the rising 200 DMA (pink on the chart) now at 1262.40, which should be violated. If accurate, this will trigger serious long liquidation that will press the SPX beneath its Mar 16 low at 1249.05, where scared long liquidation should emerge that drives the price still lower, towards 1220-1200.


Click to enlarge

At this juncture, from a big-picture perspective, only a sustained climb back above 1280/85 will start to neutralize my expectations for a bottom considerably beneath current levels.

As this cycle work indicates that the dominant directional force will remain down for the next week or two, I am staying the course in my inverse short positions in two of the weaker sectors -- energy via the UltraShort Oil & Gas ETF (DUG) -- and China via the UltraShort FTSE/XINHUA China Stock Index (FXP).

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No positions in stocks mentioned.
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