Yesterday, our cycle analysis identified a cycle high setup, indicating the potential development of the alpha high (AH) of the short-term cycle from the beginning of June. Today, the S&P 500 index plunged 2.5 percent, generating a cycle high signal and confirming that the alpha phase decline is in progress. Additionally, the quick move below the last short-term cycle low (STCL) during the alpha phase decline signals the likely transition to a bearish translation and forecasts further weakness.
With respect to technical analysis, the sharp decline today broke below three different support levels: the 50-day moving average, the lower boundary of the uptrend from November and congestion support in the 1,600 area. The advance from November has moved higher at an unsustainable rate and the breakdown that occurred today signals the likely development of a potentially violent overbought correction.
Additionally, we are on the verge of a meaningful intermediate-term breakdown on the weekly chart, so it will be important to monitor market behavior closely tomorrow.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.