After several weeks of stalling, today's movement on the broad-based NYSE Composite suggests that the index is expected to decline (Chart 1) over the next few days. Price support has been at 7350-7400. That level should be broken by early next week.

The S&P 500 (Chart 2) also appears to be ready for lower levels. The index has consolidated over the past three weeks with decreasing buying pressure. Today's swift fall on rising selling volume would imply a drop below 1220 is eminent.

Building European debt concerns, advancing bond yields and banking exposure are sighted as the reasons for the reversal.

Both indexes are trading on a 14-16 week cycle. The next anticipated low is scheduled for early January.

Bottom line: The three week consolidation appears to have come to an end. The probability of breaking below the support levels are rising. With the next low still 7-8 weeks away, models suggest the early January trough should be near the late September/early October levels.

Investment approach: Investors may wish to wait on the sidelines until early January before adding any new long positions.

More market research will be in the upcoming November newsletter.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2011 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present. He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms. He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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