Stocks Close at New Bull Market High

| January 29, 2013


The S&P 500 index closed moderately higher today, moving up to a new long-term high for the cyclical bull market from 2009. Technical indicators are bullish overall on the daily chart, strongly favoring a continuation of the advance. However, the short-term uptrend from November is moving higher at an unsustainable rate and it will likely be followed by a potentially violent overbought correction.

The last short-term signal issued by cycle analysis was generated when the short-term cycle low (STCL) formed in late December. Since then, the S&P 500 has moved sharply higher, reconfirming the bullish translation that has persisted since the previous low in November.

As always, short-term price behavior only has meaning when analyzed within the proper context afforded by the long-term view. At a current duration of nearly 47 months, the cyclical bull market from 2009 is overdue for termination and it is highly likely that the next cyclical top will form this year.

The previous long-term top in 2007 was a prototypical example of a cyclical trend inflection point and chart analysis correctly predicted its development while it was in progress. The bull market from late 2002 accelerated into a final, speculative blow-off phase in 2006, after which a classic double top formed in 2007. Given the magnitude of the rebound off of the low in 2011, it is likely that the current bull market has entered its speculative, terminal phase.

Given the historic amount of government stimulus that has been introduced during the last three years targeted specifically at risk assets such as stocks, it is highly likely that the violent market behavior of the past several years will continue during the development of the forthcoming cyclical top. Therefore, be prepared for more extreme moves in both directions across all time frames during 2013. As always, diligently applied chart analysis will identify the long-term top as it develops, but the topping process will almost certainly be an unusually wild one.


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The S&P 500 index closed moderately higher today, moving up to a new long-term high for the cyclical bull market from 2009. Technical indicators are bullish overall on the daily chart, strongly favoring a continuation of the advance. However, the short-term uptrend from November is moving higher at an unsustainable rate and it will likely be followed by a potentially violent overbought correction.

The last short-term signal issued by cycle analysis was generated when the short-term cycle low (STCL) formed in late December. Since then, the S&P 500 has moved sharply higher, reconfirming the bullish translation that has persisted since the previous low in November. The magnitude and duration of the advance from mid-January has caused a change to our preferred scenario and it is now likely that the beta phase rally of the current short-term cycle is in progress. Given the extremely bullish translation of the current cycle, it is likely that the beta phase rally will be followed by a relatively shallow beta phase decline into the next STCL, after which the character of the subsequent alpha phase rally will provide the next assessment of uptrend health.

As always, short-term price behavior only has meaning when analyzed within the proper context afforded by the long-term view. At a current duration of nearly 47 months, the cyclical bull market from 2009 is overdue for termination and it is highly likely that the next cyclical top will form this year.

The previous long-term top in 2007 was a prototypical example of a cyclical trend inflection point and chart analysis correctly predicted its development while it was in progress. The bull market from late 2002 accelerated into a final, speculative blow-off phase in 2006, after which a classic double top formed in 2007. Given the magnitude of the rebound off of the low in 2011, it is likely that the current bull market has entered its speculative, terminal phase.

Given the historic amount of government stimulus that has been introduced during the last three years targeted specifically at risk assets such as stocks, it is highly likely that the violent market behavior of the past several years will continue during the development of the forthcoming cyclical top. Therefore, be prepared for more extreme moves in both directions across all time frames during 2013. As always, diligently applied chart analysis will identify the long-term top as it develops, but the topping process will almost certainly be an unusually wild one.

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Category: Commentary, Market Update


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