33 Day Cycle
The golden rule about stock market cycles is that they work like a charm...until they don't. What are the chances that a cycle that has been virtually perfect over the past nine stock market reversals will be virtually perfect a tenth time? Pretty damn high ,i.e., not perfect, but still outstanding. Therefore, based upon this chart, we should be buying SPY Puts on Monday:
The vertical lines come in at short to intermediate term reversals of 31-33 days each. Minimum expectation is for a week-long reversals but as you can see, some last much longer. Our fail-safe is a 30% stop on "next month" at the money options. If the cycle performs in line the last nine reversals, triple digit returns from our puts well before the next 33 market days predict another turn. Trading is easy and trading options even easier. What's all the fuss about?
Fed Rate Cuts
Not convinced? Why would the market decline in light of the Fed decision to halt rate increases and to look ahead to rate cuts in 2024? This next chart not only answers that question but supports the direction set out above concerning what happens when the Fed goes from raising rates to lower rates. Stare at the relationship between reversals in Fed Rates and reversals in stock market direction it until the message comes through, lower rates are no panacea for the stock market, at least not at first.
Reversal Due
This time instead of 33 days we are looking at the times in the past 25 years when the Fed went from raising to lowering the Fed rate. The stock market declined 50% twice and 35% the third time over those 25 years. They are at it a fourth time now. History never repeats...oh wait, yes it does.
Bullish Percent Index
After finishing the above post I was under the mistaken impression that there was little more I could do to persuade my readers a reversal was imminent. Accordingly, I started my daily review of X posts of interest and came across this BPI post which is a perfect complement to my reversal due thesis. I was wrong, this is the icing on the cake so I'm including it in this weekend edition. First the text, then the chart and finally a link to the author's X post. It's definitely worth the extra effort to include in this weekends edition and absolutley worth the time to read and consider going into the end of the month, quarter and year. Pay attention, it's not always this obvious. If you want specific option strategies, sign-up.
"The Bullish Percent Index (BPI), developed by Abe Cohen in the 1950s, is a breadth indicator based on the number of stocks based on Point and Figure Buy signals. The indicator helps you know the market’s health and when it’s overbought or oversold. When the bullish percent index is above 70%, the market is overbought, and when the indicator is below 30%, the market is oversold. Like other overbought indicators, sometimes it does not get as high or as low. In 2022 and 2023, the indicator reached 70 (overbought) six times (red circles). All occurrences were near market peaks (red lines). Last week, the BPI rose, closing at 78.40 (purple circle). A reading over 70, followed by a retracement below 70, would give a sell signal on this indicator."
A reversal due creates an extraordinary risk:reward set-up for option traders over the coming few weeks. Our favorite plays were sent out to Blue Line Trading System subscribers on Saturday, along with a promise to send out a slew of new trades if certain key levels get taken out in the week ahead. Also due out in the coming weeks, our Stock of the Year, 2024. No hints this time.
