Here Comes the 2-Month Cycle

by Ashraf Laidi
Mar 13, 2009 15:13 | 41 Comments

Friday 13 may imply plenty of luck for global equity markets as it could confirm the beginning of a 2-month rally in the major indices based on cyclical analysis of the past 12 months. Since mid March 2008 (1-year anniversary of the Bear Stearns bailout), the S&P500 has persistently shown rallies and declines lasting 7-8 weeks. The same rule has applied for the FTSE, DAX and the NIKKEI.

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Here Comes the 2-Month Cycle - S&Amp;P 2 Month Cycles Mar 13 (Chart 1)

2-Month Long Bear Market Rallies

March-May 2008: S&P500 along with major global equity indices began a 2-month climb after the March 17 bailout of Bear Stearns. The bailout was accompanied by a series of liquidity-enhancing measures from the Fed and other central banks, such as extending the duration of credit lines given to banks, and broadening the types of securities purchased by these central banks. The intervention of authorities provided a temporary sense of relief that could not last beyond end of May.

July-September 2008: Global equity indices were stimulated by various factors such as the US-led consumer stimulus package, broadening central bank currency swaps and credit-expanding loans as well as a global inflation boom, which proved helpful for profit margins.

November-January 2008-09: Coordinated global interest rate cuts, concerted stimulus packages from the US, UK, Germany and China, credit-market specific announcements such as TARP and TALF, and promises of bailouts to ailing auto sectors were among the factors driving short-sellers to book profits ahead of the end-of-year closing. Seasonal analysis has also shown that the last 4-5 weeks of the calendar year usually involve a paring down of the trends prevailing in the third quarter of the year.

Where to From Here? I've shown in previous notes that since the equities peak of autumn 2007, global indices have shown rallies that were no more than 25%. (The Nov-Jan rally of 28% proved the exception as it involved three interim declines of 7%). With the likely duration of the current rally expected to last for about 8 weeks and extending for about 25%, the S&P500 may reach the 850-860 level as the next target for possible re-emergence of selling into end of June. Technically, 850 coincides with the 100-day moving average, which has not been broken since June 2008. Accordingly, major equity indices such as FTSE-100, DAX and NIKKEI-225 may also accumulate gains of similar magnitude and duration as was proven over the past 12 months.

The currency implications suggest further erosion in the US dollar against its higher yielding counterparts, specifically, EUR, AUD, NZD and NOK, while GBP and CAD are to show the most resistance in gaining vs the greenback. Yesterdays note illustrated how the dollar index (against basket of 6 currencies) failed to breach above its 7-year trend line resistance of 89.60, which also mark the 38% retracement of the decline from the 2002 high to the 2008 low. Today, the index is at 87.27, reflecting the prolonged decline in USD vs most major currencies. The $1.2930 target in EURUSD has now been breached, making way for $1.3070 and $1.3350, while GBPUSD carries momentum to test $1.4160, followed by $1.4410. USDJPY to remain capped at 100.80. Oil prices could be emboldened by a combination of additional OPEC cuts, USD losses and improved risk appetite and garner a climb a towards $50.20.

Comments (Showing latest 10 of 41) View All Comments
Ashraf Laidi
London, UK
Posts: 0
10 years ago
May 28, 2009 20:49
Simon, never discount or ignore new ideas. I heard about those astro-signals. Gann analysis use something similar to determine TIMING. I will check it out and remember to stay cautious on NFP day. Thanks

Ashraf
simon
gauteng, South Africa
Posts: 23
10 years ago
May 28, 2009 18:15
actually i don't care, (jeese i am unprofessional).
simon
gauteng, South Africa
Posts: 23
10 years ago
May 28, 2009 18:14
yeah.... and please never mention the moon on tv please. I would like that not to be common knowledge.


Thanks


Simon
simon
gauteng, South Africa
Posts: 23
10 years ago
May 28, 2009 18:10
Just a thought

You ever thing about full moon dates?


John Percival wrote something on that.

I my experience there is something there

7th May 2009 - full moon = most recent S&P top. (map them on the charts you will see)
http://www.die.net/moon/

Next Sunday 7th June (ECB / NFP)


Simon
Ashraf Laidi
London, UK
Posts: 0
10 years ago
May 26, 2009 21:59
Sean , the 2 month cycle remains applicable for US and european indices as we have NOT yet seen the highs of May 8th. Asian is a different story, (including Nikkei) which is consistent with the THEME that Asian will recover before Americas and Europe/UK.

Ashraf
Sean
singapore, Singapore
Posted Anonymously
10 years ago
May 26, 2009 16:01
Hi Ashraf

It's me again. Just wondering what is your take on the 2-month cycle. Frankly, the market is really discounting all bad news and still rising when news are "not as bad" ...especialli in AP and Singapore market, it seems that many institional funds are coming in, pushing stock prices higher. Even many penny stock prices have increased 30-50%

best rgds
Sean
Ashraf Laidi
London, UK
Posts: 0
10 years ago
May 1, 2009 9:35
Ashley, you may be rigtht, this time it could take more than 8 weeks. maybe 10 or 12. As for the magnitude, i thik this so-called breather has happenned too far to fast. 30% rally in 7 weeks with hardly any reversal is a little to rapid for a US and world economy clearly in recession.

Ashraf
Ashley
United States
Posted Anonymously
10 years ago
May 1, 2009 4:04
I was checking you 2 month cycle charts. The graph is interesting. But what makes you think, that the previous pattern will repeat itself. The markets seem to complete a textbook 5 wave cycle down in March. Dont you think the markets would take a breather after a 50% move down.

cheers,

Ashley
Ashraf Laidi
London, UK
Posts: 0
10 years ago
Apr 30, 2009 23:25
jjstone

some wise words there about markets and solvency. maybe i should raise that as the question of the next poll (will S&P hit 200-day MA) I have an interesting trend line on the S&P500 to show tomorrow.

glad people are using the forum. any suggestions are welcome !

Ashraf
jjstone
Toronto, Canada
Posts: 45
10 years ago
Apr 30, 2009 23:18
Please note 912 on the S&P is the 200ema and the 38.20% from the September peak.