Stock Market Cyclical Trend Forecast September-December 2013
After reviewing Jim Curry's overview of the markets 2013 projected path, we are revising the 18% correction that his charts revealed a high probability of hitting to a capitulation level of 21% of the August 14, 2013 market close.
Unforeseen mitigating events have merged together for a convergence effect of market instability. These effects have been outlined in our previous reviews and the increased instability in the middle east will be the flash that will spark the inevitable correction.
Jim Curry indicated:
As we plunge into the end of 2013, I wanted to post an article going over the earlier yearly forecast path, as suggested by the various time cycles that I track - and also with other indicators such as seasonal patterns, the Bradley indicator, and also the post-election 'presidential cycle' pattern in stocks.
With the above said and noted, the projected path for 2013 was expected to looks somewhat similar to that seen in 2012, though with a larger percentage correction being expected in the second-half of the year - primarily due to the position of the larger 180-day, 360-day (18-month) and four-year cycles. In- between, there should the normal up-and-down gyrations along the way, ideally with a peak in here in January ideally giving way to a low in February, prior to returning to strength again into late-Spring or early-Summer, setting up for that important top with the 360-day wave.
The Time Cycles
As for the various time cycles that were track in the spring, the 45-day cycle was seen as 10 days along and was labeled as bullish. The 90-day cycle was seen as 40 days along and is also labeled as bullish, while the larger 180-day wave is seen as 40 days along and is regarded as bullish. The 360-day cycle is 322 days along and is currently labeled as neutral, while the four-year cycle is 972 days along and is also regarded as sell at the present time.
The chart above shows the time cycle's basic forecast path for the year 2013, a path which combines the currently-viewed position of each of the cycles from the 45-day wave, on up to the 360-day component. Overall, the basic path shown favors a high around mid-January (plus or minus), drop into early-to-mid February or later (i.e., 45/90-day bottom) - and then strength again off the same into the June timeframe, plus or minus. From there, the forecast would be looking for weakness into early- Autumn (late-September or beyond), before giving way to the normal seasonal strength into year- end - but which would most likely carry over into the Spring of 2014.
I should quickly point out that the above forecast is only a very generalized expectation of the path that the S&P 500 index is favored to take in 2013. As I have mentioned before, I don't see a 'perfect order' in the markets; that is, there is only a degree of semi-predictability - at best. With that, we need to use the above as only an approximate guide/roadmap going forward, with the normal adjustments to be made along the way, always using the accompanying technical action from indicators such as breadth, volume, and sentiment as additional (and just-as-important) guidelines for navigating/trading the markets.
Support & Resistance Projections for 2013
Heading into the year 2013, the S&P 500 has a new yearly projected resistance high of 1554, with a yearly projected support low of 1356. With that, if the time-cycle's forecast path is going to play out at least semi-closely to as shown, then the best-odds for a test of this 1554 yearly projected resistance high would appear to be around June of this year, plus or minus a month. The best spot for a test of the 1356 yearly projected support low looks to be either the February bottom, or, alternately (and more likely), the low that is due into the Autumn months with the 360-day wave. However, there are other variables which we will need to take a look at, up to and including the post-election 'Presidential cycle' pattern - as well as the normal seasonal tendencies. For now, however, we will start with the various time cycles.
The 45 and 90-Day Time Cycles
For the smaller 45 and 90-day cycles, it is these two waves that should be responsible for the next good swing top on the S&P 500, with hard resistance to the same at or within 10 points of the 1500 level. It is also these two cycles that should give way to the peak shown for mid-January (plus or minus), via the 2013 forecast path shown earlier.
In terms of price, once this 45/90-day combination peak is in place, then we should expect a minimum decline back to the 70-day moving average on or around early-to-mid February. Note that the 70-day moving average is at the 1424 figure and is flatlining at the present time. Having said that, I should add that there is at least some potential for a drop back to the 200-day moving average or lower at the February cycle bottom, though right now I am leaning the odds in favor of the late-December low of 1398.11 (plus or minus) to hold the upcoming 45/90-day downward phase.
Stepping back, though the market is only semi-predictable (at best), if we simply look at patterns we can give very good odds that the probabilities will favor the February bottom also holding at or well above the 11/16/12 low of 1343.35 on the SPX. If correct, then the odds are in the range of 80%-or-better that higher highs will follow on the next swing up with the 90-day cycle, with the average rally with this component being around 14% off the bottom, but with the greater-majority seeing upward phases of 9% or greater. In other words, following a low around mid-February (plus or minus), we should be able to discern that a rally in the range of 9-14% (or more) will be seen into around the month of June of this year, which is plus or minus a month in either direction.
With the above said and noted, if we use some early-speculation and make the inference that the 1425 figure on the S&P 500 could end up as a potential bottom for the 45/90-day cycles into February (a figure which is near the 70-day moving average - but which may or may not end up as correct as the low for these waves), a minimum 9% rally would infer a move to the 1552 figure or better into early-Summer. Note how this is in line with the yearly projected resistance high of 1554, which, as noted earlier, has the best-odds of being hit on or around the month of June. For the bigger picture, of secondary note is that a test of the 1550's would be right into the open targets from some of the larger cycles, which I will go into next.
The 180-Day (9-month) Cycle
Stepping back, the last bottom for the 180-day cycle is currently deemed to have been registered at the 11/16/12 low of 1343.35 on the SPX, thus putting this wave at some 40 days along at the present time. In terms of patterns, this 180-day wave then registered the pattern of a 'higher-low' at that bottom, in that it held above the 6/4/12 bottom of 1266.74 on the SPX. And, in terms of time, when this particular pattern has been seen in the past with this wave, the average upward phase that followed - before this cycle re-topped - took approximately 116 trading days before completing. In other words, if that is seen on the current rotation, then the inference would tend to favor strength into early-May of this year (or later).
In terms of price, this 180-day cycle recently confirmed a new upside target to the 1516.89 - 1545.50 level for the S&P 500. Going a bit further, statistically speaking I should add that the greater-majority of the upward phases with this wave have seen rallies of 15% or better off the bottom, which - if seen on the current rotation - would infer at least the potential for a push up to the 1538 figure or better in the coming months.
With the above said and noted, we can make a decent inference that the probabilities favor this cycle not trying to top-out prior to May of this year, with the 1516 level on the S&P being a minimum target with the same - but with at least the potential for prices to push up to the 1538-1554 area or better before all is said and done. From there, this cycle's next low is scheduled for August of 2013 or later, though more than likely it will be made around September/October of this year, in line with the larger 360-day wave, which we will take a look at next.
The 360-day (18-month) Cycle
Stepping back further, the next major top on the S&P should come from the nominal 360-day cycle, which is currently 322 days along from it's last known trough, made back in early-October of 2011. recent rotations of this cycle have been averaging closer to 470 days, and with that, it's next bottom is currently projected to materialize sometime around the Autumn of this year, where it has a marked tendency to low-out (i.e., the months of September - October).
In terms of price, very early in 2012 an initial 360-day cycle target to 1427.63 - 1486.25 was given on the S&P, which was satisfied back in September, 2012 (chart, above). There was also a second upside target that was confirmed for this index to the 1462.64 - 1514.80 area, which was also met back in September. A third upside target was later triggered to the 1514.88 - 1588.24 region on the S&P - a projection which is still open at the present time, and overlaps the earlier-noted 180-day target range.
Going further with the above, the peak that is forecast around the month of June with the combination of cycles, seasonal - and the post-election/'presidential-cycle' pattern - should come as the result of the topping of this 360-day cycle. Also, since no new upside targets can be generated with this wave, the probabilities are strong that this highest upside target will end up topping the move up into May/June.
Stepping back, once this 360-day wave does peak, then it's average percentage decline (when coming off the pattern of a 'higher-high') has been around 18% from peak-to-trough. In other words, from a high made around early-Summer of this year, we should be looking at a decline of around 18% off the top (plus or minus), bottoming between late-September and early-November of this year. From there, we should be probably looking at test of the 1356 yearly projected support low (or lower), then to give way to a sharp rally off the same into year-end.
The Four-Year Cycle
The four-year cycle's last bottom is the 3/6/09 low of 666.79 on the SPX, which puts it at 972 trading days along from the same, currently labeled as neutral. This four-year wave is in the process of going over a very wide top - and with that is looking set to peak at anytime going forward, though with a particular focus on early-Summer of this year.
In terms of price, (and noted in prior articles) back in November of 2010 the four-year cycle had confirmed it's original upside target to the 1423.17 - 1591.25 SPX CASH area, which was met nearly two years later - doing so back in the month of August of 2012. Having said that, early in 2012 a second upside target was then confirmed with this component to the 1504.17 - 1625.83 region, a target which is still valid at the present time.
In terms of patterns, of particular mention here is that this four year cycle will usually take the shape of a 'three phase' affair, normally consisting of three smaller sub-cycles - each of these averaging around 18-months each; in other words, three rotations of the smaller 360-day cycle. Approximately 85% of the peaks with this four-year component are made in either the second or the third upward phase. With that, we are currently in that third upward phase right now, which began at the 10/4/11 low of 1074.77 on the S&P.
For the bigger picture then, this four-year cycle is looking for a peak at anytime going forward, but ideally will do so from higher levels - and (even better) from a peak that forms around early-Summer. Regardless, from whatever high that ends up being seen with this cycle, it's average decline from peak- to-trough in the past has been approximately 35.4%, lasting around 7-16 months before bottoming. Going further, the 'second phase' low (within the noted 'three-phase' pattern) has 80%-or-better odds of being tested or taken out to the downside as this wave bottoms. That 'second phase' low, as noted above, is the 10/4/11 bottom of 1074.77 on the S&P - thus giving us an idea of the downside risk for the next correction phase of this component.
In terms of time, the next bottom for this four-year time cycle is due anywhere between the Autumn of 2013 and around mid-2014. Going further, since we know that the next 360-day downward phase is due to bottom out around the Autumn of this year, the indications have been that this low would be the odds-on favorite to end up as the bottom for this four-year wave. If that should end up as the case, then the downside risks will increase from an 18% decline from a Summer peak into an Autumn bottom, to a whopping 35% - which is again the average correction phase for the larger four-year component.
The chart above shows the seasonal index for the S&P. Of immediate note is that the seasonal path is forecasting the action to play out something fairly close to what the time cycles are suggesting, with a particular emphasis on a January high giving way to weakness into February or March, then turning stronger off the same into early-Summer. From there, the seasonal index would suggest weakness into the Autumn months - followed by the normal year-end strength.
Post-Election Year Within the 'Presidential Cycle'
The year 2013 puts the various indexes into post-election year inside the 'presidential cycle' pattern. We know from the overall history of this particular pattern that the first two years after a presidential election tend to be weaker, forming an important bottom in the second year (here, this would be the year 2014), before turning sharply higher again in the following two years - and into the next presidential election period.
With the above said and noted, the chart above shows the what the average 'post-election' year looks like inside the presidential cycle. Similar to the seasonal index, we can once again see something along the lines of what the time cycles are forecasting, which is a mid-February low - strength into the Summer months - followed by weakness into the Autumn, then the potential for strength again into year-end. The only hard deviation here is that this 'post-election/presidential-cycle' chart would forecast the strength that is seen into Summer to peak into late-July or early-August, while the time cycles are suggesting month of June for a peak. Also, the above chart shows the Autumn bottom coming in around early-November, while the time cycle forecast shows late-September.
The Bradley Indicator for 2013
The chart above shows the Bradley Indicator's turning point forecast for the year 2013. Of first note is that there are two smaller turns with the Bradley for the current month, with the first being around January 20th, and the second being set for January 29th. This does not offer up much in the way of information, as turns with the Bradley can be plus or minus 4 trading days in either direction.
However, the real major turn with the 2013 Bradley is shown for mid-June (i.e., June 22nd), which is within the range of the time cycle's forecast path of a May/June high - and also the seasonal path for the same (and, at least semi-closely, the 'post-election' presidential cycle path). From there, the Bradley's next major turn does not come in until the Autumn of 2013, shown for October 8th - which would certainly be in line with a potential late-September bottom with the time and the seasonal cycles.
Having said and noted the above, with that, of all of the indicators/cycles that I track, I consider the Bradley indicator to be the least reliable for forecasting and trading, as most of the turns with the same can be very hit and miss. Even said, I know that there are those who certainly swear by it (each to his own). Regardless, we should be keeping an eye on the key dates of mid-to-late June and early-October of this year.
The Armstrong '8.6 year Global Business Cycle'
Lastly, I would be amiss if I did not include Martin Armstrong's '8.6 year Global Business Cycle' model. While I don't put a ton of weight on this model (due to it's longer-term nature), the spreadsheet that I keep for these turns is shown below:
Note that the last major turn with the Armstrong model was June 12, 2011 - which did not turn out to be anything of significance - even though the October, 2011 timeframe did end up being the last major ('second-phase') bottom within the four-year time cycle. Regardless, the next major turn is set for August of this year - which could actually take on a greater-degree of importance, simply due to the fact that each of the time/cycles, seasonals, Bradley, are looking for a major turning point high into within a month or two of that same timeframe. Stepping back further, the next major turn that follows with the Armstrong model is shown for September of 2014, which is also of some note, again due to the position of the four-year time cycle.
The Overall Bottom Line for 2013
With all said and noted, taking the combination of the cycles, seasonals, 'presidential cycle' - and the Bradley indicator - and the overall bottom line for the year 2013 tends to favor a high in January giving way to weakness into February, back to or below 70-day moving average. From there, if that low is also able to remain above the 11/16/12 low of 1343.35 on the S&P (as the odds tend to favor) - and ideally above the late-December bottom of 1398.11 - then we should see a rally in the range of 9-14% into early-Summer (June, plus or minus), a move which ends up topping the larger 360-day time cycle.
From a high made around early-Summer of this year, the risks will then move to the downside into later in the year, with the probabilities favoring a correction in the range of 18% or greater (plus or minus) into the Autumn months, eventually setting up a low between late-September (with the time cycles), but which could easily stretch out into mid-to-late October (as per seasonals) or even very early-November (with the 'presidential cycle'). From there, a strong seasonal rally will ideally take hold into year-end - which could potentially push out into the Spring of 2014 before re-topping.
We acknowledge Jim Curry and look forward to 2014 but the shorts will not be faced with a squeeze to produce an artificial rally for the Mad Money followers to save their profits. The "sell in May and go away" has transformed to "sell in September and live to remember".