Last week, our cycle analysis identified the likely formation of the latest short-term cycle low (STCL) in the stock market. On Friday, a short-term cycle low signal was generated, confirming that a new cycle is in progress.
Short-term cycle translation remains bullish for the moment, but the stock market has experienced extreme moves in both directions following the STCL in April, suggesting that a long-term reversal is becoming more likely. At a current duration of nearly 54 months, the bull market from 2009 is long overdue for termination and the latest cyclical top could form at any time.
Fueled by a historic amount of stimulus from the Federal Reserve, the cyclical bull market in stocks that began in 2009 continues to exhibit the characteristics of a classic bubble as defined by a log periodic advance.
As with all bubbles, it is impossible to predict when the top will form with a meaningful degree of statistical confidence. However, market internals have begun to exhibit signs of weakness again and negative divergences have developed on the breadth summation and volume summation charts.
As we often note, the formation of a long-term top is a process, not an event. The developing weakness in market internals indicates that the speculative advance from 2012 is losing strength, but the cyclical bull market remains in control for the moment. The next development that would increase the likelihood of a cyclical top formation could occur during the newly begun short-term cycle, so it will be important to monitor market behavior closely during the next two weeks.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.