Stock Market Continues Consolidation Near Bull Market Highs

On June 17, our computer models identified the potential formation of the beta low (BL) of the current short-term cycle. A cycle low signal was then generated early this week, confirming that the second rally phase of the current cycle is in progress. The stock market has been moving sideways since early April, suggesting that cycle translation is in question. The character of the beta phase of the current cycle will provide the next signal with respect to short-term direction.

A quick reversal followed by an extended beta phase decline that moves well below the last short-term cycle low (STCL) would signal the likely transition to a bearish translation and forecast additional short-term weakness during July and August.

Alternatively, an extended beta phase rally that moves well above the last alpha high (AH) would reconfirm the current bullish translation and favor additional short-term strength.

From a big picture perspective, the stock market continues to form a massive distribution pattern and it remains likely that the cyclical bull market from 2009 is in the process of terminating.

By holding interest rates near zero and engaging in quantitative easing during the past seven years, the Federal Reserve has created massive financial market imbalances and encouraged speculation. The gains experienced by the stock market since late 2011 have been driven primarily by monetary stimulus and this highly speculative advance will almost certainly be erased during the forthcoming bear market.

As we often note, a long-term top is a process, not an event. The character of the current short-term cycle will provide the next assessment of stock market health, so it will be important to monitor market behavior closely during the next several weeks.