May 1st, 2011
by Erik McCurdy
The S&P 500 index closed moderately higher this week, moving up to a new high for the cyclical bull market from 2009. The move up to a new long-term high reconfirms the uptrend and forecasts additional short-term gains. Follow up:
However, the breakout was not confirmed by stocks in Europe and Asia. For example, the European Top 100 index has been negatively diverging from the S&P 500 since February and it remains well below the recent long-term high.
In Asia, the Chinese Shanghai Composite has been trending lower since 2009. The symmetrical triangle formation that has been developing since late 2010 signals indecision, although this type of technical pattern usually resolves in the same direction as the previous trend, which, in this case, would be down.
Returning to the S&P 500 index, the advance from 2009 is an extreme move that will almost certainly be followed by a violent correction.
The rally is now 26 months old. Cyclical uptrends that take place during a secular bear market have an average duration of 33 months. Therefore a long-term top could form this year. The divergences in price behavior that have developed between stock markets around the world are warnings signs that warrant close monitoring as the current bull market matures.
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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: Email: firstname.lastname@example.org