Stocks Continue to Track Bullish Short-term Scenario

The S&P 500 index closed near unchanged today, holding at recent highs of the rally from early October. The advance from mid-December is overextended on a short-term basis and overdue for an overbought correction, but the character of the uptrend from October is unambiguously bullish at the moment.

The beta phase rally of the short-term cycle from November now has a duration of 21 sessions, which is longer than 95% of all beta phase rallies. The beta high (BH) is long overdue and could occur at any time during the next few sessions.

The short-term cycle from November continues to track the bullish scenario that we have been monitoring since early December. The magnitude and duration of the beta phase advance favors a continuation of the bullish translation that has persisted since the short-term cycle low (STCL) in early October. If the forthcoming STCL forms after a relatively shallow beta phase decline, additional short-term gains would be forecast heading into February.

The persistent strength during the first three weeks of January has effectively eliminated the most bearish long-term scenario that we have been monitoring since June of last year. The annual cycle from October had struggled to move up to new short-term highs during the fourth quarter of 2011 and a move down toward the annual cycle low (ACL) after a rally phase of only three months in duration would have been an extremely bearish reversal signaling the likely development of a severe cyclical downtrend.

Although the most bearish scenario is no longer likely, the next two months should provide a significant signal with respect to long-term direction, so it will be important to monitor market behavior closely. We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers.

Category: Commentary, Market Update