At the beginning of last week, our cycle analysis suggested that the intermediate-term cycle low (ITCL) we had been expecting was in the process of forming. Although a confirmed cycle low signal was not generated, the strong weekly close on Friday indicated that the low is likely in place.
Although intermediate-term cycle translation is still assumed to be bullish, the recent breakdown of the rising wedge formation on the weekly chart is a bearish development that suggests the long-term uptrend is losing strength.
At a current duration of nearly 45 months, the cyclical bull market from 2009 is overdue for termination and the next long-term top could form at any time.
As we note often, the stock market gains of the past two years have been fueled primarily by government stimulus and, as such, they are not sustainable and they will likely be erased during the forthcoming cyclical bear market. Therefore, we remain fully defensive from an investment perspective. With respect to trading, price behavior will continue to be characterized by violent moves in both directions during the next several months, providing excellent swing trade opportunities.
As always, all entry and exit points should be selected using optimal entry points as identified by judiciously applied cycle analysis.