Congestion Top Forming?

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Cycles:  Looking ahead!  90-yr cycle – last low: 1932. Next low: 2022 

7-yr cycle – last low: 2016.  Next low: 2023

Market Analysis (Charts courtesy of QCharts) 

SPX-IWM weekly charts

There are two indexes which regularly give us advance warning of a market top. One is IWM and the other is TRAN. They both have an excellent track records but currently, they are out of sync with each other. TRAN is warning of an imminent top while IWM is still exhibiting relative strength to SPX. This could be because TRAN is more reflective of the DJIA’s action which has been sluggish. We’ll soon know which of the two is correct but even if we are due for a correction, worst case scenario would be an intermediate top.  

SPX daily chart

After making a new all-time high in mid-November, SPX has continued to advance, but reluctantly, forming a wedge pattern which has settled into a trading range over the past two weeks. The parameters of the diagonal are marked by the two converging heavy lines. The lower line was breached on Monday, but a rebound averted more immediate selling.  

Since we are in the vicinity of a cycle which has regularly defined a top every 40 calendar days, it is unlikely that we can remain afloat much longer. If this indeed proves to be a wedge pattern, any decline starting from here could continue down to the level where the diagonal started or, in this case, 3485.  This would be normal market action and the decline could be rapid – also normal market action after an ending diagonal – and it would take the index down to the dashed red line, corresponding to an exact 50% retracement of the move from 3234.  

All that sounds reasonable. Perhaps too much so. Therefore, let’s keep it in the back of our minds and see what the market actually does. Enough congestion has already formed to give us a P&F count down to that level. In fact, there may be enough for a move down to 3420. This is why I don’t want to opt for anything specific right now.  

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