Stocks Continue To Consolidate Recent Losses

The S&P 500 index closed sharply higher yesterday, returning to recent short-term highs near the congestion zone in the 1,320 area. The stock market has moved sideways off of the short-term low in May, beginning the development of a consolidation formation.


With respect to cycle analysis, the short-term cycle from mid-May continues to develop in an unusual manner. Given the well-defined uptrends in both cycle analysis price oscillators, we continue to assume that the alpha phase rally is still in progress. However, the current short-term cycle scenario remains tentative and it is subject to change. The alpha high (AH) is imminent and it may have formed on June 11, although we would need to see a close below 1,308 during the next session to confirm that development.

It is likely that the market will continue to experience violent moves in both directions for the remainder of the developing short-term cycle.

With respect to the intermediate-term view, it remains possible that the half cycle low (HCL) formed in late May, although we would need to see additional sideways consolidation or renewed strength to confirm that development.

You may have seen numerous headlines this past weekend proclaiming that the stock market just had its best week of 2012. This type of reporting is typical of the mainstream financial media and it reflects a myopic view of market behavior.

Most financial reporters do not understand market trends and cycles. Instead, they see a weekly gain number that is the largest of the year and consequently conclude that the market just had its “best” week of the year. However, as always, short-term market behavior only has meaning when analyzed in the proper context afforded by the long-term view.

The sharp advance last week was nothing more than a technical reaction off of a deeply oversold short-term condition, and certainly not a bullish development when viewed in context. The violent daily moves higher and lower during the last two weeks reflect market indecision and price behavior during the next several weeks will likely provide the next signal with respect to long-term direction.