Current Position of the Market - The Intermediate Correction Continues

• SPX Long-term trend: The 4540 projection which had been in effect since the March 2020 low has now been reached, but it is too early to call for an end to the bull market that started in March 2009.
• SPX Intermediate trend: An intermediate correction has started. Let’s see if it evolves into something more serious. 
• Cycles: Looking ahead.
• Seven-year cycle – Last lows: 2009-2016. Next low: ~2023.

Market Analysis - DJIA Daily Chart

DJIA has more influence on SPX than NDX. So, taking a look at what it is doing is certainly appropriate and, according to the chart below, the past six months have not seen much progress. Since the correction between May and June, the index did make a new high, but it was no big deal and it promptly retraced most of its gains during the current short-term cycle, with the latter still a couple of weeks from bottoming. 

Which arouses our curiosity as to whether the horizontal line which delineates the topping formation will hold or be undercut. We can get a feeling for that by looking at what the SPX is expected to do. That index has a short-term distribution phase which, when converted into a Point & Figure count, gives us an objective of ~4230.

That means that it is looking at a potential 180-point decline from where it closed Friday. If we assign the DJIA roughly a 10-point loss for every point in SPX, this means that the former could see 32,950 by later this month; and that’s below the horizontal line.

If this comes to pass, it might be difficult for that index to make a new high in the foreseeable future, with the seven-year cycle due to make its low in 2023; especially if (as a subscriber recently informed me) according to Jim Curry, the four-year cycle bottoms in late 2022. 

So, my contention that the 4540-base projection from 2020 might have signaled the end of the bull market (as stated in my last newsletter) may not have been as full of hubris as it sounded, even though that was never the intention.

SPX Daily Chart

Although SPX is greatly influenced by DJIA, its performance is also influenced by NDX which, as demonstrated in last week’s letter, had a recent run-up far more extensive than DJIA. The net result being that SPX also outperformed DJIA by a good margin. Thus, even if DJIA is unable to surpass its recent high during the next intermediate rally into early 2022, it does not mean that SPX won’t.

If 4230 proves to be valid for SPX at the current short-term cycle low, it would bring its price down to the lower channel line -- keeping in mind that this channel is drawn from the November 2020 intermediate correction low and not from the March low. But with the 20-week cycle low due in November, there is a chance that the following short-term cycle low due around that time could even get an extra downside push.  

Below, I have posted the McClellan oscillator. On this chart, it made its high about February and has been losing altitude ever since. There was a low point around mid-July, a recovery high at the market top, and an apparent resumption of weakness to-date. Although it remains slightly stronger than the index -- which can be deceptive because we are comparing a chart with an oscillator -- it’s very likely that the latter will make a new low in the next market decline. 

SPX Hourly Chart 

The hourly chart is more appropriate for observing the pattern that is made by the short-term cycle which, in this case, is the 40-day Hurst cycle. The short-term sequence of market lows is 20-day, 40-day, and 80-calendar days, with the pattern repeating itself. For the sake of simplicity, each 40- and 80-day cycle is referred to as the “short-term cycle.” Each of these is punctuated by a 20-day or mid-cycle correction which varies greatly in amplitude, depending on the news catalyst which accompanies it.

The current mid-course correction was particularly deep, with the price even surpassing the former 80-day cycle low. Since then, again resulting from the news background, the index made a good recovery but remains below the previous cycle high.

Because we are now in the second phase of the short-term cycle, it is likely that the next few days will consist of additional distribution ahead of a decline into the next low. Then, we will see how much strength can be produced by the next short-term rally. 

USD (US Dollar) Daily Chart

The US dollar has now reached and slightly surpassed its top channel line. It is expected to move through it and rise above the horizontal line until it reaches about a 50% retracement of its correction or 96.50, where it should meet with stiff overhead resistance which will end the rally from the 89 level and trigger the next intermediate correction. 

GDX (Gold Miners Index) Daily Chart 

After dropping to a new correction low, GDX has made a good short-term recovery. It now needs to pull back into that low to retest it and confirm that its correction is over and that it is ready to start an intermediate uptrend which will take it outside of its corrective channel, but the extent of this cannot be evaluated until its base is complete.

PAAS (Pan American Silver Corp.) Daily Chart

PAAS is in the same relative position as GDX. It has also made a good rebound from its recent low and this has brought it to the top of its corrective channel and just below its 200-dma. After retesting the low, it should -- as GDX -- be able to mount a good uptrend, the extent of which will be evaluated after the final low is in place. 

BNO (Brent Oil Fund) Daily Chart

After making a short-term correction and resuming its uptrend, BNO was expected to continue to 22. That price was reached on Friday and the index should now be getting ready to retrace a good portion of its recent uptrend.

Summary

SPX should now be entering the distribution phase of its current short-term cycle. With a projection for the next cycle already expected to reach ~4260-30, we should watch for a confirming congestion pattern to form over the next few days.