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Stocks Continue Test Of Previous Cyclical Bull Market High

|Includes: DIA, QQQ, SPDR S&P 500 Trust ETF (SPY)

The S&P 500 index closed moderately higher today, returning to recent highs of the uptrend from October 2011. Technical indicators are moderately bullish overall on the daily chart, favoring a continuation of the rally. However, the advance from mid-December is extremely overextended on a short-term basis and the move will almost certainly be followed by a potentially violent overbought correction.

 

 

At a duration of 44 sessions, the short-term cycle from December is longer than 90 percent of its historical counterparts, and the beta phase decline has yet to begin. The current cycle has an extremely bullish translation and an orderly, shallow decline into the next Short-Term Cycle Low (STCL) would favor additional gains in March. Alternatively, a violent correction that moves well below the last Beta Low (NASDAQ:BL) near 1,312 would suggest that cycle translation is in question.

 

 

As expected, the cyclical bull market from March 2009 has struggled to move up to meaningful new highs during the last three weeks as it tests congestion resistance near the 2011 highs.

 

 

Technical indicators are bullish overall on the weekly chart, favoring a breakout to new cyclical highs. However, the second Half Cycle High (NYSE:HCH) of the intermediate-term cycle from October 2011 is overdue, so it is unlikely that the rally will be able to move up to sustainable new long-term highs until the initial phase of the next intermediate-term cycle in March or April.

 

 

The annual cycle from October 2011 remains at an important inflection point and market behavior during the next two months will likely provide the next signal with respect to long-term direction. We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.