The S&P 500 index closed moderately lower today, retreating further from recent highs of the cyclical bull market from 2009. Technical indicators are slightly bullish overall on the daily chart, tentatively favoring a continuation of the advance. However, the uptrend from November has moved higher at an unsustainable rate and it will almost certainly be followed by a violent overbought correction.
As we noted at the beginning of March, the five-phase rally from November is in the final phase of its development. Therefore, the uptrend will likely terminate sometime during the current short-term cycle from late February.
Moving out to the intermediate-term view, the advance off of the low in November marks the second time that the angle of ascent has increased following the last intermediate-term low in late 2011. The cyclical bull market is moving higher at an unsustainable rate and it will likely be followed by a violent overbought correction.
At a current duration of 48 months, the bull market is long overdue for termination and it is highly likely that the next cyclical top will form sometime this year. Additionally, the speculative nature of the advance during the last ten months indicates that the final blow-off phase of the rally is likely in progress, so a long-term reversal could occur at any time.
The stock market is currently overbought across all time frames and the next long-term correction could begin at any time. Therefore, now remains a time for extreme caution from an investment perspective and we remain fully defensive. Stocks will continue to experience violent, extreme price swings in both directions and those moves will continue to provide excellent trading opportunities. The next optimal entry point for a short swing trade could occur during the current short-term cycle, so traders should 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.