* The S&P-500 trades in one of the longest cyclical bull markets since 2009. The US market is overbought on all
time frames, in our indictor work we have non confirmations forming on all time frames, the market sentiment is
hitting historical extreme levels, the selectivity is increasing and in the outperformer markets/themes we see
charts taking a more and more parabolic shape. All this we see as evidence that the US market is on the way into
an important top in 2014, which from a cyclical perspective we expect to be a 7-year cycle peak, and which
should be the basis for a first cyclical bear market as part of a new secular bull market.
* Tactically, after the anticipated mid December buying opportunity we have been looking for another rally into a
late December/early January top. After having reached our 1850 target, we have now the missing divergences
forming in our daily trend work, which together with the non confirmations on the upper time frame and our
sentiment work at extreme levels gives us conviction that the SPX is on the way into our anticipated early Q1
tactical top. From a cyclical perspective we expect a corrective set back of 5% to 10% into a late January/early
February bottom as the next significant tactical buying opportunity. Looking at our cyclical model and taking into
account market patterns we see the most likely timing for a major market top in later Q2 and/or a deeper summer
top (June) followed by a several months lasting distribution before starting the real correction into later 2014 and
into H1 2015 as our preferred timing for an important market bottom.
* From a price perspective we expect the SPX pulling back to 1730 into a late Q1 low followed by a final rally
towards a 1920 -1970 target zone for a final top into summer. In a potential cyclical bear market into H1 2015 we
see the risk of a 20% to 30% correction, which should send the SPX minimum down to 1570, which is the last
major breakout level in the SPX.
* Small and mid caps are record high overbought and the investor optimism about small and mid caps is extreme in
the US and in Europe. From a style cycle perspective we expect small and mid caps to start underperforming in
H1, which suggests to see a negative surprise in small and mid caps this year, whereas large caps should
outperform, which leaves the door open to still see the one or other overshooting particularly in the hype themes
such as technology, which we expect to move into a big top in 2014.