Since early June, we have been monitoring developing weakness in the historic stock market bubble that has suggested the bull market from 2009 was becoming susceptible to a long-term reversal. The confirmed breakdown of the bearish rising wedge formation on June 8 was followed by a quick move down to the 200-day moving average, and today the S&P 500 index closed well below that critical support level. Technical indicators are now extremely bearish overall on the daily chart, favoring a continuation of the violent correction from late June.

The 200-day moving average is an important long-term support level that has only been meaningfully violated once since the current leg of the speculative rally began in late 2011.

Given the continuing deterioration in market internals such as breadth and volume, a confirmed break below this long-term support level would be a major bearish signal that would substantially increase the likelihood of a cyclical top developing at this time.

With respect to short-term cycle analysis, the sharp decline today generated a cycle high signal, indicating that the beta high (BH) of the current cycle likely formed on July 7. This development was also significant because the early formation of the BH after a weak advance of only 5 sessions favors additional weakness heading into the next short-term cycle low (STCL) which will likely occur sometime in late July.

As we note often, a long-term top is a process, not an event, and it develops in stages as a specific series of technical breakdowns occur. A confirmed break below the 200-day moving average would be a major development, so it will be important to monitor market behavior closely during the next several sessions.

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