A Trend Change Could Be Percolating

 | May 13, 2012 | 10:30 AM EDT
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Keep your eye on the S&P 500, because it's coming up fast on a key Fibonacci time-cycle decision that might mark a reversal to the upside. As a general rule, these cycles can help identify time periods when a trend change becomes more likely. Similar to the way Fibonacci price cluster zones can be violated, Fibonacci time clusters won't necessarily produce a change in trend, but it remains worthwhile to be aware of these cycles. That's especially so if you run them on the daily charts, as they'll give you a heads-up for a possible intermediate low or high, depending on trend direction.

But, before we get to the S&P, let's look at an old example in Under Armour (UA) for an example of how these cycles can help in your technical analysis.

Under Armour (UA) -- Daily
Source: Dynamic Trader

Last December I saw a confluence of Fibonacci time cycles in UA that came due between Dec. 21 and Dec. 26 -- right around the Christmas holiday. I measured these between key highs and lows on the chart, then projected forward in time using the same Fibonacci ratios I use on the price axis of the market. I look for a clustering of these time cycles in order to identify a time window for a possible reversal of whatever the price activity has been.

For example, if a name is clearly trading lower into the cycles, I will look for a reversal back upward. UA was trading lower into this time window. Coincidentally, the stock was also testing key daily price support, so I had two reasons to watch for a buy signal. The actual low was made Dec. 21, which was followed by more than a $29 rally from that low. That is how we want this analysis to work.

This brings me to the current cycles that I'm looking at in the S&P. First, a couple of minor cycles came due on May 8, plus or minus a day, and so far a low has been made on May 9 -- but, at this point, I'm not convinced this is an intermediate low. Actually, a more interesting cluster of timing cycles are pretty much due right here right now, between May 14 and May 15, as illustrated on the daily S&P chart below. Six cycles are coming due in this time window.

S&P 500 -- Daily
Source: Dynamic Trader

Since the S&P has essentially been trading down into this time window, I will be watching for reversal indications early this week in the S&P. It could occur if the index holds above the May 9 low, or even if it makes a new low in the next few sessions.

I have no interest in stepping in front of a freight train, however, so I will only consider an entry on the buy side of the S&P with proper reversal indications. No trigger, no trade!

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