We originally suggested on these pages that May 18 might have been a potential low basis certain Fibonacci rhythms. Instead, the market has meandered around in a volatile but trendless fashion frustrating bull and bear alike -- but making statistical arb types very happy as they avail themselves of all the daily inter-stock abberations and noise. Friday, May 19th. should hold the key to determining what is really going on here as Friday is due as a PEI "panic cycle" day in several of the major equity indices. Panic cycle days are predicted to be high volatility breakouts or reversals of trend, and in my year of association with PEI, I saw their progniostication of such fulfilled in various different markets at least 85% of the time.

If the market were to suddenly break significantly higher on this panic cycle day, we would have to throw the towel in on the bear scenario for awhile. This would be particularly the case if the downtrend line pictured above in the S&P were to be broken. At this stage, however, it is our strong proclivity that the May 19th panic cycle day should instead still usher in more weakness into a potential low the week of June 5th (which is the next S&P panic cycle week). If this equity weakness were to take the Nasdaq 100 down to approximately 2950 by this latter week, we would be far more confident that the market could then -- from that lower level -- launch a substantive bounce for the balance of June and July.

Thereafter a panic cycle month in the August Nasdaq would likely lead to another reversal into a late September equity market low of more significance. This is the most probable rhythm as we see it, but we will be on our toes Friday, May 19th to give us our first confirmation of this path. Significant market strength Friday -- should that occur for some unforseen reason -- would be extremely detrimental to this otherwise likely market rhythm.

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Sand Spring Advisors provides information and analysis from sources and using methods it believes reliable, but cannot accept responsibility for any trading losses that may be incurred as a result of our analysis. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, and should always trade at a position size level well within their financial condition. Principals of Sand Spring Advisors may carry positions in securities or futures discussed, but as a matter of policy will always so disclose this if it is the case, and will specifically not trade in any described security or futures for a period 5 business days prior to or subsequent to a commentary being released on a given security or futures.