Short-term Forecast for March 8, 2012

| March 8, 2012

Stock Market Internals Begin to Weaken

The S&P 500 index closed moderately higher today, rebounding further off of support at the lower boundary of the uptrend from October and approaching recent highs.

As we have noted often during the last several weeks, the rally is extremely overextended on a short-term basis and it will almost certainly be followed by a violent overbought correction. Breakdowns in price are often preceded by breakdowns in market internals such as volume and breadth. The following graphs display the long-term views of volume summation and breadth summation, both of which have been moving lower since peaking in February.

These retracements in volume and breadth are early signs of developing weakness in the rally from October. However, they do not suggest that a long-term reversal is imminent. Price will often continue to trend higher as internal indicators move lower, especially when a rally becomes highly speculative and market sentiment approaches bullish extremes. For example, notice how both indicators trended lower during the development of the topping formation in 2011. A long-term top is a process, not an event, and these downturns in volume and breadth suggest that the rally is losing internal strength. If stocks struggle to move higher during the next three months and market internals continue to deteriorate, the development of a severe correction similar in character to the 2011 decline would become highly likely.

S&P 500 Index Daily Chart Analyses

The following technical and cycle analyses provide short-term forecasts for the S&P 500 index. For intermediate-term outlooks see the latest intermediate-term forecast and for long-term outlooks see the latest long-term forecast.

Technical Analysis

The index closed moderately higher again today, reacting further off of support at the lower boundary of the uptrend from October 2011. Technical indicators are slightly bullish overall, tentatively supporting a return to recent highs.

Cycle Analysis

We are 26 trading days into the cycle following the short-term cycle low (STCL) on January 31. A shallow beta phase decline followed by a move up to new highs for the uptrend from October would reconfirm right translation and favor additional short-term strength. Alternatively, an extended beta phase decline that moves below the last STCL near 1,312 would signal a likely transition to left translation. The window during which the next STCL is likely to occur is from March 12 to April 1, with our best estimate being in the March 12 to March 16 range.

  • Last STCL: January 31, 2012
  • Cycle Duration: 26 trading days
  • Cycle Translation: Right (bullish)
  • Next STCL Window: March 12 to April 1; best estimate in the March 12 to March 16 range.
  • Setup Status: No active setups.
  • Trigger Status: No pending triggers.
  • Signal Status: No active signals.
  • Stop Level: None active.

Short-term Outlook

  • Bullish Scenario: A close well above the recent short-term high near 1,374 would reconfirm the uptrend from October and forecast additional gains.
  • Bearish Scenario: A close below the recent short-term low near 1,343 would confirm a break below uptrend support and predict a move down toward congestion support in the 1,305 area.

Both scenarios are equally likely at the moment.

US 10-year Treasury Note Yield Daily Chart Analyses

The following technical and cycle analyses provide short-term forecasts for the 10-year Treasury note yield. For intermediate-term outlooks see the latest intermediate-term forecast and for long-term outlooks see the latest long-term forecast.

Technical Analysis

Yields closed moderately higher again today, moving into the upper half of the recent trading range. Yields have been confined to a trading range between 1.80% and 2.10% since November 2011 and a close well outside of this area will predict the direction of the next meaningful move with a high degree of statistical confidence. Technical indicators are neutral to slightly bullish overall, suggesting that direction is in question with a slight upward bias.

Cycle Analysis

We are 12 trading days into the cycle following the short-term cycle high (STCH) on February 21. The quick return to the last STCH indicates that cycle translation is in question. A subsequent close well above the last STCH would confirm a transition to right translation. Alternatively, a reversal and move below the last alpha low (AL) would reconfirm left translation and favor additional short-term weakness. The window during which the next STCH is likely to occur is from March 13 to April 2, with our best estimate being in the March 19 to March 23 range.

  • Last STCH: February 21, 2012
  • Cycle Duration: 12 trading days
  • Cycle Translation: Left (bearish)
  • Next STCH Window: March 13 to April 2; best estimate in the March 19 to March 23 range.
  • Setup Status: No active setups.
  • Trigger Status: No pending triggers.
  • Signal Status: No active signals.
  • Stop Level: None active.

Short-term Outlook

  • Bullish Scenario: A close above the recent short-term high near 2.05% would confirm a break above downtrend resistance and predict a return to trading range resistance in the 2.10% area.
  • Bearish Scenario: A reversal and close below congestion support near 1.90% would predict a return to trading range support at the 1.80% level.

The bullish scenario is slightly more likely (~60% probable).

US Dollar Index Daily Chart Analyses

The following technical and cycle analyses provide short-term forecasts for the US dollar index. For intermediate-term outlooks see the latest intermediate-term forecast and for long-term outlooks see the latest long-term forecast.

Technical Analysis

The index closed sharply lower today, moving down toward recent lows of the overbought correction from January below the congestion zone in the 79.60 area. Technical indicators are effectively neutral overall, suggesting that direction is in question.

Cycle Analysis

We are 7 trading days into the cycle following the short-term cycle low (STCL) on February 28. A cycle high signal was generated today, indicating that the alpha high (AH) likely formed on March 6. A shallow alpha phase decline followed by a move above the AH would reconfirm right translation and favor additional short-term strength. Alternatively, a quick return to the last STCL would suggest that cycle translation is in question. The window during which the next STCL is likely to occur is from March 23 to April 9, with our best estimate being in the March 28 to April 4 range.

  • Last STCL: February 28, 2012
  • Cycle Duration: 7 trading days
  • Cycle Translation: Right (bullish)
  • Next STCL Window: March 23 to April 9; best estimate in the March 28 to April 4 range.
  • Setup Status: Cycle high setup occurred today.
  • Trigger Status: Cycle high trigger occurred today.
  • Signal Status: Cycle high signal was generated today.
  • Stop Level: None active.

Short-term Outlook

  • Bullish Scenario: A rebound and close above the recent short-term high near 79.90 would confirm the break above congestion resistance in the 79.60 area and predict a move up toward previous highs of the uptrend from August 2011.
  • Bearish Scenario: A close below the recent short-term low at 78.27 would confirm the break below congestion support in the 78.50 area and forecast a move down to uptrend support near 77.50.

The bullish scenario is slightly more likely (~60% probable).

Gold Daily Chart Analyses

The following technical and cycle analyses provide short-term forecasts for the gold market. For intermediate-term outlooks see the latest intermediate-term forecast and for long-term outlooks see the latest long-term forecast.

Technical Analysis

Gold closed moderately higher today, reacting further off of recent short-term lows of the overbought correction from last week near congestion support in the $1,680 area. Technical indicators are slightly bearish overall, tentatively favoring a continuation of the decline.

Cycle Analysis

The move higher today generated a cycle low signal, indicating that the latest short-term cycle low (STCL) likely occurred on March 6. A weak alpha phase rally followed by an extended decline that moves below the last STCL would reconfirm left translation and favor additional short-term weakness. Alternatively, an extended alpha phase rally that approaches the last beta high (BH) near $1,786 would suggest that cycle translation is in question. The window during which the next STCL is likely to occur is from March 22 to April 4, with our best estimate being in the March 23 to March 29 range.

  • Last STCL: March 6, 2012
  • Cycle Duration: 2 trading days
  • Cycle Translation: Left (bearish)
  • Next STCL Window: March 22 to April 4; best estimate in the March 23 to March 29 range.
  • Setup Status: Cycle low setup occurred today.
  • Trigger Status: Cycle low trigger occurred today.
  • Signal Status: Cycle low signal was generated today.
  • Stop Level: None active.

Short-term Outlook

  • Bullish Scenario: A close above the recent short-term high near $1,786 would reconfirm the uptrend from December 2011 and forecast additional gains.
  • Bearish Scenario: A reversal and close well below the recent short-term low near $1,675 would confirm a break below congestion support in the $1,680 area and predict a move down toward congestion support at the $1,600 level.

The bearish scenario is slightly more likely (~60% probable).

Gold Currency Index Daily Chart Analysis

The Gold Currency Index (GCI) is a composite of gold prices in the currencies of 10 of the largest economies in the world as defined by GDP. It is therefore currency independent, reflecting the intrinsic value of gold as an international currency itself.

Technical Analysis

The GCI closed moderately higher today, reacting further off of recent lows of the overbought correction from last week near congestion support in the 41.60 area. Technical indicators are neutral to slightly bearish overall, suggesting that direction is in question with a slight downward bias.

Short-term Outlook

  • Bullish Scenario: A close above the recent short-term high near 43.90 would reconfirm the uptrend from December and predict a return to all-time highs near 45.15.
  • Bearish Scenario: A reversal and close well below congestion support in the 41.60 area would reconfirm the overbought correction from last week and forecast additional losses.

The bearish scenario is slightly more likely (~60% probable).

Oil Daily Chart Analyses

The following technical and cycle analyses provide short-term forecasts for the oil market. For intermediate-term outlooks see the latest intermediate-term forecast and for long-term outlooks see the latest long-term forecast.

Technical Analysis

Oil closed slightly higher today, holding below recent highs of the uptrend from October above congestion support in the $102.50 area. Technical indicators remain neutral to slightly bullish overall, suggesting that direction is in question with a slight upward bias.

Cycle Analysis

We are 7 trading days into the cycle following the short-term cycle low (STCL) on February 29. The beta low (BL) is imminent and likely formed yesterday. A weak rebound followed by an extended beta phase decline would reconfirm left translation and favor additional short-term weakness. Alternatively, an extended beta phase rally that moves above the last alpha high (AH) would signal a likely transition back to right translation. The window during which the next STCL is likely to occur is from March 19 to April 1, with our best estimate being in the March 19 to March 23 range.

  • Last STCL: February 29, 2012
  • Cycle Duration: 7 trading days
  • Cycle Translation: Left (bearish)
  • Next STCL Window: March 19 to April 1; best estimate in the March 19 to March 23 range.
  • Setup Status: No active setups.
  • Trigger Status: No pending triggers.
  • Signal Status: No active signals.
  • Stop Level: None active.

Short-term Outlook

  • Bullish Scenario: A rebound and close above the recent high near $109.70 would reconfirm the uptrend from October and forecast additional gains.
  • Bearish Scenario: A close below congestion support in the $103 area would predict a return to uptrend support near $99.30.

Both scenarios are equally likely at the moment.

Category: Forecasts, Short-term Forecasts


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