Stocks Break Below Long-term Uptrend Support

March 12th, 2011
in b2evolution, contributors

Erik (5) 3-11-2011          by Erik McCurdy

The S&P 500 index closed moderately lower this week, moving below support at the lower boundary of the cyclical uptrend and beginning a test of new congestion support in the 1,300 area.

Other important global markets are also showing some behaviors related to the S&P 500.  We will examine the questions being raised when examining stock charts this week.

Follow up:

Erik (1) 3-11-2011
Technical indicators are now neutral to slightly bullish overall on the weekly chart, indicating that near-term direction is in question. The rally from September is extremely overextended by historical standards and overdue for a correction. With respect to cycle analysis, the decline this week has resulted in the formation of a bearish engulf pattern, confirming the cycle high setup that occurred two weeks ago and consequently generating an intermediate-term cycle high signal.
Erik (2) 3-11-2011
The cycle high signal suggests that the latest Intermediate-Term Cycle High (ITCH) occurred in early February and favors a subsequent 2 to 3 week decline into the next Intermediate-Term Cycle Low (ITCL). European stocks experienced a similar breakdown this week with the European Top 100 index closing well below long-term uptrend support as well.
Erik (3) 3-11-2011

The breakdown in Europe was more pronounced than in the US, strongly favoring a relatively quick move down to support at the bottom of the Bollinger bands and the 50-week moving average in the 226 area. The Chinese stock market has been trending lower since the long-term high in 2009, and the Shanghai composite moved up to test downtrend resistance early this week before reversing and closing slightly lower.


Erik (4) 3-11-2011


It will be important to monitor global stock markets during the next few weeks as they are now aligned for a synchronized decline, and the character of the developing correction should provide a great deal of clarity with respect to long-term direction. A powerful, sustained downtrend would suggest the development of a cyclical trend inflection point, while a relatively weak retracement followed by a return to recent long-term highs would favor a continuation of the bull market from early 2009.

Erik McCurdy Erik McCurdy is the senior market technician for Prometheus Market Insight and has been analyzing charts every day for over 15 years. The software program that he developed to monitor long-term stock market trends has correctly predicted over 90% of the long-term turning points in the S&P 500 index since 1940. His Gold Currency Index has predicted every major trend change in the US gold market since its creation in 2005. The Prometheus Market Insight newsletter service provides daily, weekly and monthly forecasts for stocks, bonds, currencies, commodities and precious metals using proven computer models that base their predictions on technical and cycle analysis.


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