Monday 1 May 2023: Dow Heatmap, Levels and Scenarios
We now have our answer to the question regarding the mid-month April cluster asked here:
As a reminder:
“The clusters command more of my attention. As the scenarios in the chart above suggest, the final cluster in _____ (which falls at the end of a negative APZ) could mark some form of bottom/pivot. Prior to that, a peak would come in at one of the earlier clusters. Incidentally, the first three months of this year have seen the mid-month dates resonating more with trend changes:
Mid-Jan: trend-interruption (-4% on DJIA and SPX)
Mid-February: trend-change
Mid-March: trend-change
Mid-April: trend-interruption or trend-change?”
The answer is obviously “trend interruption”, as the markets have or are close to registering year-to-date highs, after correcting by ~3%.
Recall that we were expecting momentum peaks in said cluster and then some form of market peak some time in May, as discussed here:
Especially:
“Notice the close alignments with lows in the market or the oscillator in the lower panel. If this cycle remains hot for one more recurrence, momentum peaks would likely be registered in mid- and late-April (11th to 25th). That would then be followed by an actual market peak some time in May prior to a consolidation or reversal leading to a low in early-June. This is entirely consistent with our heatmap, which is constructed with completely different methods. It also helps us along with the concept of Time Counts to prepare for opportunities to take profits and or buy further dips if the thesis continues to hold.”
In fact, the market bounce of the proposed support in the first chart in Tuesday 25 April 2023: A Preview of May 2023 from the Cycles, and the reaction has been swift. Ahead of a big week on the economic calendar, we will now refine the game-plan discussed in said report.
Game-Plan Refinement
Various techniques give us a target ranges of 34,600 - 35,100 in the Dow and 4,245 - 4,300 in the SPX. If, when and how we get there requires us to dive into the Heatmap et al.
1. Heatmap and Ensemble Forecast
Below I have shown the Heatmap out to the end of June. First of all, you can see why I was so bullish for the late-March to early-May period (and by extension, bearish into late-Feb/mid-March). Now look at the picture for May and pay extra attention to LTC4 which I have highlighted (this is year-to-date the path with both the highest correlation AND lowest mean squared error between the forecast and realised path: