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Stock Market Intermediate-term High Likely In Place

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

The S&P 500 index ended the week near support at the lower boundary of the uptrend from October 2011. However, the March employment data was much worse than consensus expectations, causing a 15-point decline in S&P 500 futures on Friday. For several weeks, we have noted that the rally from October is extremely overbought and awaiting a catalyst to set in motion a potentially violent overbought correction. It is highly likely that the disappointing March employment data has provided the necessary catalyst. Although market conditions can change between now and Monday, the sharp decline in stock futures suggests that the S&P 500 index will likely close sharply lower during the next session. A 15-point drop would result in a confirmed break below uptrend support and forecast a quick move down to congestion support in the 1,345 area.

 

 

The decline this week nearly generated a cycle high signal, suggesting that the latest Intermediate-Term Cycle High (ITCH) likely formed last week. A close below current levels next week would confirm that the corrective phase of the intermediate-term cycle from October 2011 is in progress. Given the extremely overbought state of the rally from October, it is likely that the corrective phase will have an equally violent character heading into the next Intermediate-Term Cycle Low (ITCL) in late April or early May.

 

 

There is no meaningful support on the weekly chart until the congestion zone in the 1,340 area, so it is highly likely that the index will return to that level during the corrective phase of the current cycle.

 

 

Now that the latest intermediate-term high is almost certainly in place, it will be important to monitor market behavior for signs of a cyclical top. At a current duration of 37 months, the cyclical uptrend from 2009 is four months longer than the average bull market during a secular downtrend, so the uptrend could terminate at any time. We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers.

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