SPY: Approaching Historic Micro Consolidation
Hypothesis: S&P 500 (and the market as a whole) is approaching a series of consolidations:
a) Consolidation 1:
- signal: as soon as RSI begins to fall (past dotted yellow lines)
- magnitude: ~10%
- time: July 31st (possibly earlier)
* The timing is based off of historical cycles. The current cycle is much slower than the 2002 / 2008 cycles --> 42% to 115% slower respectively. So while the small scale consolidations that occurred in those cycles 61 days from the solid yellow DMI line, the current cycle is much slower and so we can expect this consolidation to occur further out in time. Estimate: 91 days, but the RSI signal is the only important consideration.
b) Expansion 1:
- magnitude: ~10%
Once Consolidation 1 is complete, there will be expansion, as has occurred in the past 2 cycles. Possibly greater than 10%.
*signals and timing to come
c) Consolidation 2:
- signal: expansion 1 completes and DMI + / - indicators cross (past red lines)
- magnitude: ~20%
- time: The timing is difficult to predict, but tentatively September 2015
d) Bull Trap (Expansion 2):
e) Consolidation 3:
* Once the Consolidation 2 begins, it is dangerous to attempt to capture the Bull Trap profits due to the risk of losing your position.
a) Consolidation 1:
- signal: as soon as RSI begins to fall (past dotted yellow lines)
- magnitude: ~10%
- time: July 31st (possibly earlier)
* The timing is based off of historical cycles. The current cycle is much slower than the 2002 / 2008 cycles --> 42% to 115% slower respectively. So while the small scale consolidations that occurred in those cycles 61 days from the solid yellow DMI line, the current cycle is much slower and so we can expect this consolidation to occur further out in time. Estimate: 91 days, but the RSI signal is the only important consideration.
b) Expansion 1:
- magnitude: ~10%
Once Consolidation 1 is complete, there will be expansion, as has occurred in the past 2 cycles. Possibly greater than 10%.
*signals and timing to come
c) Consolidation 2:
- signal: expansion 1 completes and DMI + / - indicators cross (past red lines)
- magnitude: ~20%
- time: The timing is difficult to predict, but tentatively September 2015
d) Bull Trap (Expansion 2):
e) Consolidation 3:
* Once the Consolidation 2 begins, it is dangerous to attempt to capture the Bull Trap profits due to the risk of losing your position.
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