Current Position of the Market
SPX: Very Long-term trend – The very-long-term cycles are down and, if they make their lows when expected (after this bull market is over) there will be another steep and prolonged decline into late 2014. It is probable, however, that the steep correction of 2007-2009 will have curtailed the full downward pressure potential of the 120-yr cycle.
SPX: Intermediate trend – Correction
The market correction which started in early April is not over and, based on cycles, may run into late-July/early-August before it is. Six days ago, the SPX completed a phase projection and has been consolidating since. From a cyclical viewpoint, there are two possible scenarios for what lies directly ahead: there is a cycle cluster due in mid-June which could turn out to be a high or a low point for the market. I lean toward its being a high because of the more dominant cycles that have recently bottomed, and are about to bottom in the next few days, and which will be setting the trend for the following couple of weeks. (If there is enough upward pressure from the longer-term cycle which has already made its low, it is possible that SPX might even start extending its uptrend past the recent highs right away.)
If this is the case, the current consolidation should end with an extension of the interim rally to about 1340 or higher. It will be followed by the final leg of the correction into the time frame mentioned above, and could reach as low as 1235-1245 before it ends. If this turns out to be the completion of wave 4 from 1075, the index should then start wave 5 and rise to a new high before completing it.
This forecast is a guesstimate based on cycles and structure. It will be refined or modified, if need be, as the market trend evolves.
On the Daily Chart, we see that SPX is now traveling in the blue channel which defines its current trend. If the target which I have set for the low of the correction is valid, the decline should end outside of the channel and find support on the lower green line, just as it did on the upper one. For now, the 200-DMA is also adding temporary support. It has already been violated, but it does not matter even if it is decisively broken, providing that prices can move back above it as they did during last year’s August to December consolidation.
On the P&F chart, there were two separate phases of distribution which formed at the SPX top. The shortest one, taken across 1411, gave us a count to 1304 which was slightly exceeded as the decline ran its course.
There is another count that could be taken at the 1397 level that has stored enough negative energy to take prices down as low as 1235, although the likely bottoming range should be somewhere between 1235 and 1255. I’ll be able to refine this count as soon as the current consolidation is over.
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The CCI developed some divergence at the recent low, and this argues for an extension of the interim rally before the correction continues. The MACD has no such divergence, only slight deceleration. This suggests that lower prices will be seen before the correction is over.