Erik McCurdy's  Instablog

Erik McCurdy
Send Message
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
My company:
Prometheus Market Insight
My blog:
Prometheus Market Insight
  • Has The Stock Market Bubble Burst? 1 comment
    Feb 9, 2014 7:25 PM | about stocks: SPY, DIA, QQQ

    Click the graphic below to play this video.

    For the past four years, the stock market has exhibited the classic characteristics of a bubble as defined by a log periodic advance. Fueled by a historic amount of stimulus from the Federal Reserve, the cyclical bull market from 2009 has accelerated into an unsustainable advance and the next long-term top will almost certainly be followed by a violent correction that will result in substantial losses. In early January, we noted that the historic extreme in bullish sentiment suggested that the bubble was on the verge of collapse. Since then, the S&P 500 index has moved sharply lower, indicating that the top of the bubble may be in the process of forming.

    (click to enlarge)

    However, as we often note, a cyclical top is a process, not an event. The recent breakdown of the power uptrend from 2012 is the first sign of a long-term reversal, but market behavior during the next several weeks will determine if the next cyclical bear market is commencing.

    (click to enlarge)

    The latest intermediate-term cycle low (ITCL) is imminent and it could form at any time. How the stock market behaves following the confirmed formation of the latest ITCL will tell us if a long-term top is likely developing.

    (click to enlarge)

    From a short-term perspective, the magnitude of the beta phase decline of the cycle from December signaled the likely transition to a bearish translation. Our computer models identified the potential formation of the latest short-term cycle low (STCL) last week and the cycle low signal that was generated on Thursdayconfirmed that a new cycle is in progress. If the formation of the latest ITCL is confirmed by subsequent market behavior during the next two weeks, the character of the developing short-term cycle will provide the next assessment of cyclical bull market health.

    (click to enlarge)

    Regardless of whether the next cyclical top is forming right now, it is important to maintain focus on the long-term view. The bull market from 2009 is long overdue for termination and market investment risk remains at an extremely high level.

    (click to enlarge)

    As with all bubbles, it is impossible to predict when the inevitable collapse will occur with a meaningful degree of statistical confidence. However, recent developments suggest that a long-term reversal could be in progress right now, so it will be important to monitor market behavior carefully during the next several weeks. Given the magnitude and duration of the developing stock market bubble, it is a virtual certainty that the next cyclical downtrend will be extremely violent and severe. If this bubble is followed by a typical post-bubble correction, the S&P 500 index will likely lose 30 to 50 percent during the forthcoming bear market. Therefore, now remains a time for extreme caution and we remain fully defensive from an investment perspective.

    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
Back To Erik McCurdy's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (1)
Track new comments
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
    Makes sense.. but market timing, given massive central bank interventions, is a best a total crap shoot now.
    9 Feb 2014, 08:18 PM Reply Like
Full index of posts »
Latest Followers


More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.