We have been forecasting the formation of a long-term top in the stock market since early this year, and this week that scenario became more likely as our Cyclical Trend Score (NYSE:CTS) moved into sell territory.
The software program that we use to generate the CTS has successfully identified 90% of all long-term turning points in the S&P 500 index going back to 1940, including every cyclical trend change since the current secular bear market began in 2000, so we take this potential sell signal very seriously.
In order for the sell signal to be validated, the S&P 500 must either confirm the recent break below cyclical uptrend support by closing well below the 1,050 level over the next couple of weeks or fail to break out to a new long-term high during the next short-term uptrend. The index is currently holding right at cyclical uptrend support and has been attempting to form a short-term bottom over the past three weeks.
The only development that would invalidate this CTS sell signal would be a strong move to new highs above 1,217 on the S&P 500, but our computer models project that scenario to be relatively remote with a current likelihood of less than 20%. The next four to six weeks will be critical ones with respect to the long-term trend in stocks, so it will be important to keep a close eye on the broad market indices.
Disclosure: No positions