The S&P 500 index closed sharply lower Friday, retreating further from previous long-term highs of the cyclical bull market from 2009 and returning to congestion support in the 1,400 area. Technical indicators on the daily chart continue to weaken and are now slightly bearish overall, tentatively favoring a continuation of the decline from last week.
Early last week, cycle analysis identified the potential formation of the latest beta high (BH). Since then, the beta phase decline has developed as expected and the current short-term cycle has reached a potentially important inflection point.
A quick rebound followed by an extended alpha phase rally of more than 10 sessions in duration that moves above the last beta high (BH) followed by a shallow alpha phase decline would reconfirm the current bullish translation and favor additional short-term strength.
Alternatively, an extended beta phase decline of more than 9 sessions in duration that moves well below the last beta low (BL) followed by a weak alpha phase rally would signal the likely transition to a bearish translation.
From an intermediate-term perspective, the rebound off of the last intermediate-term cycle low (ITCL) continues to track the topping scenario that we outlined in November
. Although a cycle high signal was not generated this week, the sharp decline indicates that a half cycle high (HCH) may have formed last week. Additional weakness next week would confirm that the HCH is in place and signal the likely transition to a bearish intermediate-term translation.
Additionally, the annual cycle remains on the verge of generating a cycle high signal. A monthly close below 1,412 on Monday would generate a confirmed signal, indicating that the latest annual cycle high (ACH) likely formed in September. The early formation of the ACH after only four months would be a bearish sign that would favor the transition to a bearish translation.
As we note in every long-term forecast, the formation of a long-term top always occurs in conjunction with an annual cycle translation change from bullish to bearish. At a current duration of 46 months, the cyclical bull market from 2009 is overdue for termination
, so we will continue to monitor the development of the latest annual cycle closely.
Charts do not always have an important story to tell, but it is important to listen to their message when they do. The stock market is on the verge, and is issuing meaningful signals across multiple time frames, so it will be important to monitor price behavior closely during the next several weeks.