In early June, several subcomponents of our Cyclical Trend Score (NYSE:CTS) indicated that the cyclical bull market in stocks had become vulnerable to the development of a violent overbought correction. The subsequentdeterioration in market internals such as breadth and volume has accelerated during the last two weeks, suggesting that the long-term uptrend is losing strength.
The CTS continues to trend lower in negative territory and it could move into the sell signal area sometime during the next two weeks.
A move below -65 by the CTS would be the first step in the potential generation of a cyclical trend sell signal, but we remain a long way from any definitive developments. Cyclical tops usually take from several weeks to several months to form and the market will provide plenty of advance warning when the forthcoming long-term reversal is in progress. From an intermediate-term perspective, the recent weekly close below support at the lower boundary of the power uptrend from 2012 was the first meaningful technical breakdown since the current uptrend began in 2011.
The breakdown favors a return to support at the lower boundary of the power uptrend from 2011 near 1,513 on the S&P 500 index. The character of the developing overbought correction will provide the next assessment of bull market health, so it will be important to monitor price behavior closely during the next several weeks.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.