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Current Cyclic Outlook for the S&P

In my prior post, I discussed several key mid-term cycles that were turning down into the mid-November time period - which would ideally set the S&P 500 up for it's largest correction seen since coming off the March, 2009 bottom. With that, last Thursday's sharp rally was favored to be a countertrend retracement within this decline phase - and one that was destined to give way to new lows for the swing - obviously said and done with the recent action.

With the above said and noted, last Thursday's close of 1066 now looks to be a key short-term resistance/psychological level for the SPX. Moreover, we move into the month of November with a new monthly projected resistance high of 1069, which tends to add weight to this assessment. In other words, the larger down cycles will want to keep prices below this level (on a closing basis) as we work our way forward.

The chart below shows the approximate position of the 90 and 180-day cycles, which are the cyclical components that are responsible for the current selling wave:

In red on the above chart is the 'combination' wave, which simply shows the potential path that these cycles would normally take - in this case, into an expected November bottom. I should quickly point out there that the decline won't neccessarily be a straight shot down, as this red combo wave is suggesting. In other words, there should be various up-and-down gyrations along the way, the first of which will come from the bottoming of a smaller 20-day wave. For the short-term, any push above the 1053.50 figure on the SPX would be the indication that a rally is in force with this smaller 20-day cycle, while below this same figure and the index will remain vulnerable to lower lows.

Should a near-term rally materialize with the 20-day cycle in the days ahead, then the same would probably see the monthly projected resistance high (1069) acting as strong resistance for the SPX. That rally should also end up as a countertrend retracement - which would then be followed by even lower lows again on the following swing down.

Stepping back, a normal percentage decline with the larger 90 and 180-day waves will be in the range of 10%-or-better off the top, which would tend to target a move down to the 991 level or lower for the SPX. A key figure as we move into the month of November is the 1019 figure on the SPX, which is the October bottom; taking this out to the downside should signal a push on down to this 10% correction level.

Once we get into the normal statistical range for a correction with the 90 and 180-day cycles, then we can begin to look for technical indications of a larger low forming. Even said, I should add here that there is the potential for a more dramatic decline that takes the SPX all the way down to or below it's 180-day moving average; this is simply based upon my rule that a cycle will tend to revert back to a moving average of the same length. This rule is true for smaller cycles about 95% of the time; for larger cycles (greater than 90-days in length) it occurs on approximately 70% of instances.

On the chart below, I have extrapolated the current 180-day moving average to this mid-November period:

By mid-November, this 180-day moving average looks like it will come in near the 960 level, plus or minus. Taking the recent swing high of 1101.36 for the SPX and using the July bottom of 869.32 as a pivot, we come in with a 50% retracement at the 985 figure, and a 61% retracement of 957; note how closely these line up with the 10%-correction level - as well as with the 180-day moving average. I think one of these levels could well be the one that potentially marks the bottom for this larger down phase in the weeks ahead.

In terms of time, there are two key dates of focus for the month of November. The first of these is November 11th, plus or minus 2 trading days - with the second being November 27th, which is also plus or minus 2 days. Interestingly, the next turning point with the Bradley 'psychological' indicator (chart, above) is currently set for November 10th, perhaps making this a key date to watch as we move forward - especially if the SPX is selling down into that particular time. Stay tuned.

By Jim Curry - Market Turns

Jim Curry is the editor and publisher of Market Turns advisory, which specializes in using cyclical analysis and technical methods to time the markets. He has written articles for various market-related magazines and is also a regular guest on the show. To be added to his mailing list click HERE