A potential shorting opportunity may be coming up in the S&P/ASX 200 Index (INDEXASX:XJO), which reflects the top 200 stocks in the Australian Securities Exchange. In addition to being at important resistance, two very important cycles in this market are both poised to begin heading downward starting this spring.

On the monthly timeframe, two cycles can be extracted from price data, with lengths of 80 weeks and 40 weeks. Based on cycles alone, we would expect weakness to extend into 2016 or 2017. The shaded areas on the monthly chart below show previous times when both cycles have converged in their downward phases, and each instance has coincided with either a retrace or a reversal.

In addition to the potential cyclic high, price also is retracing into a target area of 5,422 to 5,670 -- a range based on Fibonacci retracement values of the big decline from 2007 to 2009, and also based on a 1x1 extension measurement up off the 2009 low.

At the very least, traders with long positions should consider taking profits. A shorting opportunity may be forming here, but the relevant entry signals depend on the individual trader's approach and risk tolerance. Aggressive traders might make an offer near one of the resistance levels shown on the monthly chart. More conservative traders would wait for a lower high and/or a breach of the channel on the weekly timeframe, and they would use the prior high as a guide for setting stops.

A more detailed examination on the weekly timeframe can be found at Trading On The Mark.