Last week was a period of high volatility. Some will say it was news related, and they will be right. But it is also something that normally happens when cycles are peaking, and the news items which affect market prices in this manner are referred to as “catalysts”. This coincidence is a natural phenomenon and something that cannot be readily explained; just observed. In the previous letter, I had mentioned that we needed to see the start of some price congestion as an indication that a top was forming. I had also mentioned that a reversal would probably occur in about two weeks. It looks as if this is arriving right on cue.

Last week’s SPX high of 2657 was probably only an interim projection. A slightly higher one to about 2668 may turn out to be the real target of the move which started at 1810, on January 2016 (7-year cycle low).  It has given us quite a run, but there are other cycles that are now in the process of topping and which are not going to make it as easy as it has been to be bullish. If you want to read more about the current cyclic configuration, an excellent source would be Eric Hadik’s December Insiide Track ([email protected])

Chart Analysis  (These charts and subsequent ones courtesy of QCharts)

SPX daily chart:

Last week, in a “news related atmosphere”, mainly the promise of “tax reform”, SPX moved exponentially into the top area of the projection target which originated at the recently formed base of 2670 and, after started starting a normal enough correction, on Friday plunged 43 points in 26 minutes on another– but negative this time — news item.  But the panic was quickly over and, by the close, the index had recovered all but seven points of its decline.  

From a technical viewpoint, SPX found resistance when it reached (simultaneously) the junction of three different top channel lines, including that of the primary channel from 1810. It is probably a good bet that all three of these channels’ bottom lines will be breached over the next few weeks (and even months), as the market corrects the 847-point rally which started at 1810. Again, this reversal point is not expected to be the start of the next bear market, but only a normal, cycle-induced correction, which could bring, at a minimum, a .235 retracement of that entire uptrend, or about 200 points. This is only a loose approximation.  We can derive a more specific projection from the size of the entire top distribution pattern once it has been completed.