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Erik McCurdy's  Instablog

Erik McCurdy
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Erik is the senior market technician for Prometheus Market Insight and has been performing chart analysis since 1995. The software program that he developed to monitor long-term stock market trends has correctly identified 92% of the cyclical turning points in the S&P 500 index since 1940.... More
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  • Stock Market Cyclical Bull Rebounds Off Of Critical Long-Term Support

    We have been monitoring developing weakness in the historic stock market bubble that has suggested the bull market from 2009 is becoming susceptible to a long-term reversal. The short-term breakdown in early June was followed by a quick move down to long-term support at the 200-day moving average in late June, and that critical support level was tested last week before the S&P 500 index rebounded sharply during the past two sessions. Technical indicators are now effectively neutral overall on the daily chart, suggesting that short-term direction is in question.

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    With respect to cycle analysis, the strong advance during the past two sessions indicates that the beta low (BL) of the current short-term cycle likely formed on July 8 and not on June 29.

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    However, the magnitude and duration of the alpha phase decline that occurred from late June until early July continues to signal the likely transition to a bearish translation, so the most likely scenario with respect to the second half of the current cycle is a weak beta phase rally that fails to move above the alpha high (NYSE:AH) in June followed by a move below the last BL during the beta phase decline.

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    Alternatively, an extended beta phase rally that moves up to a marginal new long-term high for the cyclical bull market followed by a shallow decline into the next short-term cycle low (STCL) would suggest that cycle translation is in question.

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    It is important to note that these violent moves in both directions, which have been occurring on a regular basis for the past year, are signs of distribution and speculative exhaustion. They are absolutely not signs of a healthy uptrend.

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    The weakness in market internal data such as breadth and volume has developed in tandem with this distribution pattern, increasing the likelihood that we are in the early stages of a cyclical top formation. Of course, the formation of a cyclical top is an extended process that usually takes six to twelve months to complete, so it is much too early to draw any conclusions from a long-term perspective. The next test of bull market health will occur during the beta phase of the current short-term cycle. If the S&P 500 index tracks the bearish short-term scenario outlined above, resulting in a confirmed break below the 200-day moving average, the long-term topping scenario will become more likely, so it will be important to monitor market behavior closely during the next three weeks.

    We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers. Try our service for free.

    Jul 13 11:50 PM | Link | Comment!
  • Stock Market On Verge Of Major Breakdown

    In early June, we noted that the historic stock market bubble had begun to exhibit early signs of weakness, suggesting that the bull market from 2009 was becoming susceptible to a long-term reversal. Two days later, the short-term uptrend experienced a meaningful breakdown when the S&P 500 index closed well below support at the lower boundary of a rising wedge formation on the daily chart. The rising wedge breakdown signaled the likely start of a meaningful correction and today the index declined more than 2% as it approached critical long-term support at the 200-day moving average.

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    Given the continuing deterioration in market internals such as breadth and volume, a daily close well below the 200-day moving average at 2,054 would be a significant breakdown and increase the likelihood of a long-term reversal.

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    With respect to cycle analysis, the sharp decline today moved well below the last short-term cycle low (STCL) in early June, signaling the likely transition to a bearish translation and favoring additional short-term weakness heading into the next low in late July or early August.

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    Moving out to the intermediate-term perspective, the sharp decline during the last four sessions is tracking the bearish scenario that we outlined last week. A weekly close on Friday at current levels or lower would signal the likely transition to a bearish intermediate-term translation and favor four to five months of additional weakness heading into the next intermediate-term cycle low (ITCL) in October or November.

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    Additionally, a weekly close well below the middle of the Bollinger bands on the weekly chart at 2,096 would predict a relatively quick return to cyclical bull market support near 1,990.

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    As always, it is important to remember that a long-term top is a process, not an event. The bull market from 2009 will remain healthy from a technical perspective as long as it remains above long-term uptrend support. However, the developing short-term and intermediate-term breakdowns are significant, especially when coupled with the deterioration in market internal data such as breadth and volume. The next test of bull market health will occur at the 200-day moving average, so it will be important to monitor market behavior carefully during the next several sessions.

    We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers. Try our service for free.

    Jun 29 9:44 PM | Link | Comment!
  • Stock Market Cyclical Bull Begins Important Test

    In early June, we noted that the historic stock market bubble had begun to exhibit early signs of weakness. At the time, our computer model predicted the imminent formation of the latest short-term cycle low (STCL) and intermediate-term cycle low (ITCL). As expected, the STCL formed on June 9 and the ITCL formed during the week ending June 12.

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    Market internals such as breadth and volume continue to negatively diverging from price behavior, indicating that the bull market is losing upward momentum.

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    These breakdowns in market internals tell us that distribution is taking place and that market participants are becoming more risk averse, suggesting that the uptrend has become vulnerable to a breakdown. As always, it is important to remember that a long-term top is a process, not an event. Now that the latest ITCL is in place, the character of the advance during the next several weeks will provide an important assessment of bull market health.

    We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers. Try our service for free.

    Jun 21 12:41 PM | Link | Comment!
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