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After two consecutive days of declines, the question of the day is if the current rally, which began in early October, is just resting or about to morph into the type of month-long corrective phases that have been prevalent since June?

Since the middle of April, the trend of the stock market has been fairly easy to identify. Stocks have tended to rally for a month or so and then correct for a month. In short, it's been a stair-step affair with the end result being positive. However, both teams have had decent opportunities for the past six months.

Both Teams Have a Case

Currently, there are good arguments from both sides of the field. The bears contend that "the taper" being back on the table as a possibility in December means that the current joyride to the upside is over. Those dressed in their furry costumes also say that earnings have not been all that great and that higher rates will start to bite at some point soon.

However, the bull camp suggests that March/April 2014 remains the most realistic time frame for the Fed to begin tapering their bond-buying stimulus program and as such, the switch for liquidity trade is back in the "on" position. In addition, those wearing the rose-colored Ray Bans argue that the fundamental backdrop for stocks remains positive and that any dips should be bought for the foreseeable future.

Time To Review The Cycle Projections

Although the economic news of the day is likely to dominate trading in the coming week (remember - the October Jobs report is due out next week), investors should note that the month of November has a pretty good reputation for generating gains. So, with the market looking uncertain, it is time to review what the historical cycles have to say about the month of October.

Since this is the eleventh review of the cycles and cycle composite this year, there is probably little need to go over all the disclosures/disclaimers again. However, it is important to recognize that the analysis of cycles (or any other indicator) should not be used in a vacuum or as a stand-alone indicator. However, the data continues to be an important input into our daily and weekly Market Environment models.

For anyone new to this analysis, the cycle composite is a combination of the one-year seasonal, the four-year Presidential, and the 10-year decennial cycles - all going back to 1928.

November Has a Decent Reputation

History shows that the month of November begins a very strong seasonal period for the stock market. If one wanted to stick with the historical tendencies, they would buy the low seen in November and then "sell in May and go away." In addition, November contains strong seasonality around the Thanksgiving holiday and has traditionally ushered in the year-end rally.

Is The Market In Sync With the Cycle Projections?

The first step in the analysis of the cycles is to get a feel for whether or not the cycle projections are "on" or not at the present time. Looking at how the market acted relative to the cycle composite in October, it should be noted that the stock market went almost directly opposite the cycle composite's projection during the month.

From an intermediate-term point of view, the market (as defined by the S&P 500) appears to be trending higher while the cycle composite projection has been calling for a steady downtrend since August. However, from a longer-term point of view, stocks are largely in line with the forecast from the cycles.

What Does November Look Like?

The next step is to take a look at what the cycle projections are calling for during the coming month:

One-Year Cycle: The picture painted by the one-year seasonal cycle is pretty positive. November has had a tendency to start off strong as rallies during the first two-thirds of the month have been the norm. However, a relatively brief (a week or so) pullback tends to occur sometime after the middle of the month before the traditional year-end rally begins around Thanksgiving. The bottom line: November starts and finishes strong.

Four-Year Cycle: The four-year Presidential cycle projection is not nearly as encouraging. Historically, the month has been a see-saw affair with only a slightly upward bias. But the bottom line here is the month does end higher than it began.

10-Year Cycle: The bad news is the 10-year cycle looks very different from the upbeat one-year cycle and the modestly positive four-year cycle. The 10-year suggests the month will be a steady correction and end on a negative note (with a modest loss for the S&P 500 on the month).

The Cycle Composite: The overall cycle composite is obviously a combination of the individual cycles. So, with the one-year calling for a positive month, the four-year looking for a modest advance, and the ten-year projecting a decline, it isn't surprising that the composite suggests a flat-to-modestly down month.

What To Look For

So there you have it. The various cycles suggest that stocks could go higher, lower, or sideways. Not helpful, right?

With the cycle outlook not exactly clear, it is probably a good idea to utilize a flexible approach during November and to stay on your toes. After all, the S&P is up more than 23 percent year-to-date and there is a fair amount of uncertainty on the horizon. Thus, the best play is to put away the crystal ball and attempt to stay in tune with what the market IS doing. But then again, we say that EVERY month!

Publishing Note: I am traveling on business next week (attending the NAAIM conference in Chicago and then moving on to Detroit to visit the gang at Benzinga) and will publish morning reports as time (and energy levels) permit.

Turning to This Morning...

The battle between the bull and bear argument is likely to continue today. There was good news out of China overnight as the official PMI hit the highest level in eighteen months. However, overseas markets are mixed at best and U.S. futures are pointing to a higher open in front of some important data (ISM Manufacturing) later this morning.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:

- Japan: -0.88%

- Hong Kong: +0.19%

- Shanghai: +0.39%

- London: +0.07%

- Germany: -0.22%

- France: -0.35%

- Italy: -0.31%

- Spain: -0.40%

Crude Oil Futures: -$0.75 to $95.63

Gold: -$10.00 to $1313.70

Dollar: higher against the yen, euro, and pound.

10-Year Bond Yield: Currently trading at 2.581%

Stock Futures Ahead of Open in U.S. (relative to fair value):

- S&P 500: +3.76

- Dow Jones Industrial Average: +52

- NASDAQ Composite: +10.32

Thought For The Day ... When in doubt, just take the next small step...

Positions in stocks mentioned: none

Source: Daily State Of The Markets: What Do The Cycles Say For November?