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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. His... More
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  • Stocks Hold At Bull Market High 0 comments
    Feb 12, 2013 6:01 PM | about stocks: SPY, DIA, QQQ

    The last intermediate-term signal for the stock market was generated in November when the intermediate-term cycle low (ITCL) of the current cycle formed. Since then, the S&P 500 index has gained more than 11 percent during the course of 12 weeks, moving up to a new high for the cyclical bull market from 2009.



    (click to enlarge)

    The rally off of the low in 2011 has developed into a rising wedge formation, which is a technical pattern that is usually followed by a severe decline. The bull market will remain healthy as long as the S&P 500 remains above rising wedge support, currently near 1,412, but a weekly close well below that support level would predict a relatively quick return to cyclical bull market support, currently near 1,268. As expected, the rebound off of the last ITCL has struggled at the upper boundary of the rising wedge formation and the next meaningful weekly decline would favor a return to the lower boundary of the formation.



    (click to enlarge)

    The current short-term cycle began in late December and the rebound off of that low has now advanced for 30 sessions without experiencing a meaningful retracement, creating an extremely overbought condition. The rebound off of the low in early February has caused a slight change to our preferred scenario and it is now likely that the beta low (Pending:BL) formed on February 4. Short-term cycle translation remains extremely bullish and the character of the developing beta phase rally will indicate if additional short-term gains are likely.



    (click to enlarge)

    As we noted last week, market sentiment has become extremely bullish and our sentiment score has moved well into sell territory, indicating that the overbought rally has become vulnerable to the development of a potentially violent correction. Therefore, it will be important to monitor the beta phase of the current short-term cycle for signs of a reversal.

    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.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: SPY, DIA, QQQ
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