Chart the Turning Points in Time Cycles

Time. It's the most precious of commodities. It's also an important tool to integrate into your trading plan.

Time can be just as critical -- if not more critical -- than price in determining major market turning points. I've shown numerous examples where markets turn at clusters of Fibonacci price resistance or support. Look at the big moves in gold, copper, wheat, cattle and other futures that came after these markets were halted at Fib price points.

The application of Fibonacci ratios to market timing works similarly. You start with the most important ratios: 38.2%, 50%, 61.8%, 100% and 161.8%. Next, you locate major swing points, either swing highs or swing lows. Finally, you project the time-cycle ratios from the swing points forward into the future.

If their dates tightly cluster within a one- to three-day period, that is an indication of a time-cycle turning point.

Let's look at the current Fibonacci time-cycle cluster in September T-bonds (USU2:CBOT). Notice that point A and point B on the following chart are the same swing-low starting points for two of the time-cycle projections.

Start from the swing or cycle low at point A and project out 50% of that distance into time from the swing or cycle high at C. That gives us a date at point D of Aug. 15. Similarly, projecting out 100% in time from the cycle lows B and E terminates on Aug. 16. Finally, projecting out 161.2% in time from A and B gives us a potential ending point that also occurs on Aug. 16.

You can see that the ending points of the three time-cycle Fibonacci ratio projections occur today and tomorrow, creating a tight cluster that suggests T-bonds may have hit a turning point. This time cluster comes within one day of the high hit on Wednesday, and that is acceptable within the parameters of this Fibonacci time-cycle projection analysis.

The five-day, 5% explosion in T-bonds also leaves them overheated and vulnerable to a correction. Notice that the Aug. 14 high is tracing, so far, into a shooting star, a topping pattern. A shooting star is a bar that gaps higher after a run-up and closes near its open -- in the case Wednesday in T-bonds, on the low of the session.

The risk here in establishing shorts is that you would be trading against what is now the most powerful momentum market of the major futures contracts, so keep stops tight. There are also fewer "quality" debt choices available, because of corporate scandals and bankruptcies, which could continue to act as demand drivers for risk-free Treasuries.

Intraday price areas to consider testing the view that the time-cycle high will hold are at 110 9/32, 110 19/32 and 110 28/32 for Thursday's session.

Juice

This week we find out whether speculation over forecasts for the orange crop from nongovernmental entities is correct and merits the steep rally in September orange juice (OJU2:NYBOT) witnessed over the past month. Juice registered its own potential reversal signal, an outside day at a contract high after a three-wave push higher.

Wednesday's action was weak, with juice barely budging off the lows established from Tuesday's big down day, its biggest plunge of the year. Action in the juice options pit Wednesday was bearish as well, with almost an equal number of puts being bought as calls. (There is always a bias to call-buying, so the increase in put-buying is a negative here.) The initial downside target is 101.30 and then 99.90.

Marc Dupee is an independent trader and co-author of the book The Best: Conversations With Top Traders. Dupee was formerly markets analyst and futures editor for TradingMarkets Financial Group. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to Marc Dupee.

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