Spurred by the finalized "fiscal cliff" agreement, the S&P index closed sharply higher today, returning to previous long-term highs of the cyclical bull market from 2009. Stock market behavior has been characterized by extreme short-term moves in both directions during the past several months, indicating indecisiveness as the cyclical uptrend proceeds through the final phase of its development.
On Monday, cycle analysis identified the likely development of the latest short-term cycle low (STCL) on December 28. The strong advance today generated a cycle low signal, confirming that a new short-term cycle is in progress.
From an intermediate-term perspective, the strong advance during the first two sessions of the week indicates that the initial rally phase of the cycle from November is likely still in progress.
Despite the euphoria accompanying the gains of the past two sessions, the big picture continues to urge extreme caution from an investment perspective. The cyclical uptrend from March 2009 is now 46 months old and the rally is overdue for termination.
The latest cyclical top could form at any time and we remain fully defensive from an investment perspective. Market behavior in January will provide the next signal with respect to long-term direction, so it will be important to continue monitoring stocks closely during the next several weeks.
We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.