Stock Market Cycles Looking for a Peak!
By Jim Curry
February 22, 2011
Since the Summer of 2010, the various U.S. stock indices have garnered an impressive run, pushing up some 32% from our last major bottom with the 9 and 18-month cycles.
The current upward move was anticipated, with the 180-day (i.e., 9-month) cycle confirming various upside targets along the way. In terms of cyclic price projections, back in September this 180-day cycle had confirmed an initial upside target to the 1187.09 - 1226.23 region for the SPX, which was satisfied on 10/21/10. Shortly afterwards, this cycle confirmed an additional upside projection to the 1243.16 - 1286.36 level, which was met on 12/13/10. Before this target was even satisfied, the cycle then confirmed yet another upside target to the 1259.47 - 1314.71 region - hit on 12/28/10. A final upside target with this wave was confirmed to the 1302.16 - 1314.71, met back on 1/28/10. You can see each of these targets, along with the current position of this 180-day cycle, on the chart below:
The 180-Day (9-month) Cycle
At the present time, the 180-day wave is around 161 trading days along from its last bottom, which was the July, 2010 low of 1010.91 on the SPX. This positioning infers two things: (1) the cycle is bullishly right-translated, still making higher highs well past the halfway point, and (2) it is well into its range for a peak. The next bottom for this wave is scheduled to materialize in the month of March, though there is an alternate to this which could push it further out into the April - June timeframe.
At what price level this 180-day component will top is a good degree of speculation; there was resistance at or near the 1300-1314 range - which has been exceeded, and thus is now new support to any move lower. The next area of real resistance won't come in until the 1365 area (plus or minus 10 poinst), and will be key to watch in the coming days, should it be tested.
In terms of time, approximately 85% of the upward phases of this 180-day wave have seen their peaks made on or before the 173 trading day mark, suggesting that its current upward phase may have it's peak set in place by the early-March timeframe. Until a higher level is seen, the current downside 'reversal point' for this 180-day cycle is any intraday push back below the 1271 figure; in other words, below 1271 SPX CASH will favor this wave to have topped - while remaining above the same will allow for the cycle to remain in its current bullish configuration with price. Near-term support for the SPX is currently at the 1317-1334 range, key to note as we head into the new week.
Once the next top is in place with this 180-day cycle, then the same should give way to a 2-6 week correction phase. That correction is likely to be in the range of 7% or-better off the top, and ideally will see some attempt at the 200-day moving average - wherever it is at the time. That same 200-day moving average should also provide important mid-term support for the SPX, and would ideally hold off any decline phase with this wave going forward.
Stepping back, the downward phase of this 180-day cycle is favored to register the pattern of a 'higher-low' - meaning that it should hold at or well above it's prior bottom of 1010.91 SPX CASH. If this pattern of does play out as expected, then the index has approximately 80%-85% odds of making new highs again on the next 180-day/cycle upward phase that follows. That would then set up a peak with the larger 360-day component, which is currently looking to peak at some point around the Summer of 2011. The chart below shows a 'stepped back' view of both the 180 and 360-day waves:
The 360-day (18-month) Cycle
Like the smaller 180-day component, the 360-day cycle also bottomed at the July, 2010 low of 1010.91 on the SPX - and thus is currently seen as 161 days along. However, unlike the smaller 180-day wave, this component is currently seen as being in a bullish configuration. The upward phase of this 360-day wave is favored to last into the July - September timeframe of this year, then to set up what could be a much more important top with the larger four-year cycle.
The current upward phase of this 360-day cycle has registered the pattern of a 'higher-low'/'higher-high', in that it held above its prior bottom of 666.79 (from 03/06/09) - and took out its prior peak of 1219.80, seen on 4/26/10. When this particular pattern has been seen in the past, then the following 360-day/cycle rally phase averaged around 270 trading days before retopping. If something similar is seen here, then the inference is that this 360-day component will hold up into July, 2011 before topping (plus or minus).
In terms of patterns, the larger four year cycle (more on this one in a bit!) will usually take the shape of a 'three phase' affair, normally consisting of three rotations of this 360-day cycle. The greater-majority (85%) of these have seen the four-year cycle top in either its second or third upward phase, which we are set to do here (we are in the second 360-day upward phase right now). In terms of time, approximately 80% of these 'second' phase rallies with the 360-day cycle have topped out on or before 14 months from their bottom. Thus, taking the July, 2010 bottom and adding 14 months gets us September, 2011 as an approximate late-end expectation of when this (360-day) component should peak.
In terms of price, the average 360-day rally - when registering the above-noted pattern of a 'higher-low/'higher-high' - has been in the range of about 40% (or better) off the bottom. As noted many times (in my subscriber-based weekly outlook), if something similar is seen on this cycle's current upward phase, this could put the SPX up into the low-1400's before the next 360-day peak attempts to form.
In terms of actual cyclic projections from this 360-day wave (chart, above), there was an initial upside target (given back in October, 2010, also posted in a prior article) to the 1257.67 - 1312.51 range on the SPX CASH, which was met on 12/22/10. On or not much afterwards, there was a secondary upside target for this cycle to the 1300.87 - 1365.31 range - which was hit on 1/27/11. There was then a third upside target to the 1348.24 - 1404.35 region - which was nearly hit last week. This component has recently confirmed an even higher upside target to the 1408.06 - 1479.23 range, which is now right in line with the normal statistical upward phases with this wave.
As noted above, this 360-day cycle will ideally see it's peak sometime made between July and September of this year. Following whatever peak that ends up being registered with the same, the following 360-day/cycle downward phase should take the SPX sharply lower into the Autumn months - with the average decline (when coming off a 'higher-high') normally in the range of about 15-20% off the top.
Following whatever low that is registered with the 360-day cycle into the Autumn of 2011, the next upward phase of this component should take the SPX higher into the Spring of 2012, there setting up another top. Statistically, that rally should be in the range of 20% (or better) off the bottom - but could be as high as 30-40% - depending on how the action plays out into the Autumn of this year.
The 4 Year Cycle
The 4-year cycle (chart, above) is currently seen as 494 days along from the 03/06/09 low of 666.79 and has been regarded as bullish into at least February of 2011 (which has obviously been satisfied) - but, more ideally, will hold up into the Summer of 2011 or later. The next low for this component is due in the Autumn of 2012 or the Spring of 2013. However, this cycle could potentially stretch out its next bottom into the year 2014 - which is where the 'presidential cycle' low is due.
In terms of price, the average price rally with this four-year wave in the past - when coming off the pattern of a 'lower-low' - had been over 100% from trough-to-peak. With that, the indications were that the SPX would see an push up to the 1330's or higher before this cycle topped; this statistical assumption was noted in some prior articles - and has now been met with the recent action.
In terms of actual cyclic price targets, back in early-November of last year this cycle ended up confirming an upside target to the 1423.17 - 1591.25 SPX CASH range , which is still open at the present time.
For the long-term picture, the upper end of the four-year cycle target range (i.e., mid-to-high 1500's) should also act as major resistance to its current upward phase, with trading band resistance at or near the same vicinity (upper red channels, chart below). Once this cycle does peak, then the average decline on the following downward phase of the same has statistically been in the range of 35-40% off the top, while the normal minimum declines have usually been in the range of 20%-or-greater before bottoming.
For the long-term picture, the upper end of the four-year cycle target range (i.e., mid-to-high 1500's) should also act as major resistance to its current upward phase, with trading band resistance at or near the same vicinity (upper red channels, chart above). Once this cycle does peak, then the average decline on the following downward phase of the same has statistically been in the range of 35-40% off the top, while the normal minimum declines have usually been in the range of 20%-or-greater before bottoming.
The Medium-Term Cycles (45 and 90-day Waves)
Stepping in a bit closer, the smaller 45 and 90-day waves are also in topping range, with the smaller 45-day wave now at 21 days along and the larger 90-day cycle currently at 65 days along. The last low for the 45-day wave was the 1/20/11 bottom of 1271.26, with recent rotations averaging around 36-38 days from trough-to-trough. That projects it's next bottom for around mid-March of this year, plus or minus a week in either direction.
The last bottom for the 90-day wave was the 11/16/10 low of 1173.00 on the SPX. The most recent rotations of this cycle have been averaging around 78-83 trading days from trough-to-trough; that projects the next low for this component for around mid-March of 2011 (plus or minus), which is approximately where the smaller 45-day wave is projected to bottom.
For the smaller 45 and 90-day waves, it would only take a daily close below the 1308 figure to confirm their peaks in place. Should that develop, then we would have to look for additional correction into around mid-March (plus or minus). Otherwise, remaining above 1308 on a close will keep the shorter-term 45 and 90-day cycles in their current bullish configuration.
With the above said and noted, there are two ways that the action could play out in the weeks/months ahead. The first scenario is simply for the current 90-day upward phase to peak the larger 180-day component. If that is going to be true here, then a daily close below the 1308 figure on the SPX could not only indicate a 90-day peak in place - but also a top with this larger 180-day wave. That would then give way to a correction of 7% or better off the top, one that would last 2-4 weeks, and would then give way to higher highs on the next upward phase to follow.
The second (and alternate) scenario that could play out would look something like this: the SPX confirms a reversal to the downside with the 45/90-day waves in the next week or three (possibly off the 1360-1375 SPX CASH range), but then holds above the 1271 level on that correction. That would allow for a push to new highs again on the next upward phase, which would only then peak the larger, (and extended) 180-day cycle. From that high we would then see the normal 7-10% correction with this component, likely coming in the form of a late bottom for the same in the April/May timeframe (plus or minus).
Regardless of the above, the 200-day moving average should provide important near-term support to the next 180-day down phase. And, provided the same holds any correction with this component (plus or minus), then the expectation would be for higher highs to continue to materialize into the Summer of 2011 (i.e., July - September), then to set up a more important peak with the larger 360-day component at or into the low-to-mid 1400's on the SPX.
Jim Curry - Market Turns