Stock Market Confirms Development of Intermediate-term High

March 19th, 2011
in contributors

 erik 3-19-11   by Erik McCurdy

Last week, an intermediate-term cycle high signal was generated when the S&P 500 index moved below long-term uptrend support of the cyclical bull market from 2009, suggesting the formation of an Intermediate-Term Cycle High (ITCH) in early February. Stocks continued lower this week, confirming that the ITCH is now in place.

Follow up:

erik (1) 3-19-2011

We are 16 weeks into the current intermediate-term cycle and have entered the window during which the next Intermediate-Term Cycle Low (ITCL) is likely to form. The character of the rally off of this next ITCL should provide a great deal of clarity with respect to long-term direction. As always, it is important to remember that a reversal is a process, and the longer the time frame under observation, the longer the reversal process generally takes to complete. Therefore, although the violent nature of the recent breakdown suggests that a cyclical trend inflection point may have occurred, we are still several weeks away from any definitive developments. Our Cyclical Trend Score (CTS), which has correctly identified 90% of the long-term inflection points during the past 70 years, has just broken down to a new low for the downtrend from late 2010, but it remains well above sell signal territory.

Erik (2) 3-19-2011

If the next short-term reaction is relatively weak and struggles to move up to new long-term highs before returning to recent lows, the CTS will quickly approach sell territory, suggesting the likely development of a cyclical trend inflection point. Alternatively, a strong reaction that quickly breaks out to a new long-term high for the cyclical bull market would forecast additional gains. Moving out to a longer time frame, the sharp decline in March has raised the possibility that the latest Annual Cycle High (ACH) has occurred in February.
Erik (3) 3-19-2011
All long-term inflection points occur in conjunction with an annual cycle translation change. In this case, the development of a cyclical trend inflection point would cause the annual cycle to transition from right to left translation. If the latest ACH has in fact occurred in February, we would expect the next Annual Cycle Low (ACL) to form sometime during the next 3 months, after which a failure to break out to new long-term highs would confirm the switch to left translation and favor the topping scenario.

Returning to the intermediate-term time frame, we currently have a clear understanding of stock market state with respect to both technical and temporal characteristics. Although the violent breakdown that we had been anticipating has occurred, it is only the first step in a potential topping process. For now, we will await the start of the next short-term reaction and then closely monitor its development.

Related Articles

Stocks Break Below Long-term Uptrend Support  by Erik McCurdy

The Week Ahead:  Look Past the Headlines  by Jeff Miller

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.  Stay in touch:

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