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Stocks heading for a 3-6 week correction!

For the mid-term picture the stock indexes are in the process of putting in a semi-important top, with the 45-day (10-week), 90-day (20-week), and 180-day (40-week) cycles now very extended - and thus due for what could be a fairly sharp decline phase. The combination of these cycles is shown in the chart below:

If and when this combined peak is in place, then a correction in the range of 10%-15% is favored into mid-to-late November, which could correct all the way down to the 180-day moving average before bottoming (currently extrapolating to the 950‘s or higher by November, chart below). However, this decline should not ideally take out the July bottom of 869.32 - and it should then return to make new highs for the larger swing into the Spring of 2010, where a much larger peak could then be attempted with the 360-day (nominal 18-month) wave.

With the above, traders who are long might want to consider tightening stops or taking profits - or even looking towards the short side of the market. Current, short-term support for the SPX appears to be at the 1081 figure - and, if taken out to the downside - there would be some potential that this combined peak is in place. For the NDX, that same level would come in at approximately the 1740 figure for this particular index - key levels to note as we move forward.

I am currently short partial positions in the QID, TZA, SDS

Jim Curry
Market Turns