Friday, February 28, 2014

Yes, Virginia, It’s a Bull Market – but is It Entirely Immune from Corrections?

In terms of market sentiment, I find anecdotal evidence interesting at times.  I've mentioned this in the past, but one of my favorite personal anecdotal stories dates back to January 2013.  In the articles I wrote that month, my tone and projections were rabidly bullish, and I barely gave any airtime to the bears.  What's interesting to me anecdotally is that those articles weren't very popular with readers at the time.  I found myself throwing in bearish "what if" long-shot discussions, simply as an attempt to retain readers, most of whom seemed uninterested in bullish things.  More recently, my articles have been focusing on the intermediate bear case -- and those haven't been terribly popular either.  Not exactly scientific, I know; but food for thought nonetheless.

I'll be the first to admit I like bear markets better than bull markets.  For me, they've always been more profitable to trade -- and frankly, they're just more fun.  Bear markets are volatile, and volatility provides profit opportunity.  They're also more fun to chart and write about.  Bull markets are, to put it bluntly, kind of boring: "Today the market went up (again!), as investors cheered Janet Yellen's announcement that during all future Fed meetings, Fed governors will henceforth address each other only as 'buddy'."

I mean, c'mon.  How fun is that stuff to write about (or read)?  Not very, I can tell ya'.  It reminds me of the movie LA Story in which Steve Martin plays a Los Angeles weatherman who prerecords his weekend forecast ("more sun!") because the weather is so incredibly consistent.   

Anyway, as of this exact moment, we're still in a bull market -- so today, we're going to look at the long-term in a bit more detail via the 20-year chart of the S&P 500 (SPX).  I didn't label the first portion of it, which is shown mainly for perspective.  The chart discusses the rest, including the bull/bear conundrum at the current inflection point.

Not shown is the bearish alternate count of a more complex long-term expanded flat, which would have the market revisit the C-wave low.  A little more than a year ago, I was equally split on whether SPX would rally "only" to 1750 or into the 2000's -- needless to say, the bear count 1750 target was exceeded, so at this point, fortunes would need to reverse rather abruptly to breathe life back into that long-term bear count.

Next is the 30-minute SPX chart.  Barring the noted signals on the chart, I'm still inclined to believe the market is wrapping up a five-wave rally which will need a downside correction.  The question which lies at the time frame beyond that is as noted on the long-term chart: short-term top or intermediate correction?  Given the market's performance of the past year-plus, one could be forgiven for starting to think that intermediate corrections have been outlawed (probably why it's not popular to discuss them lately!).

The Dow Jones Transportation Average (TRAN) continues to have a nice clean pattern to watch for broad market clues over the near-term -- and does still suggest downside is pending for the broader market.

In conclusion, the market has given no signals yet that it intends to extend the rally too much farther, and I'm still inclined to believe that we're in, at the least, a short-term topping phase.  The TRAN chart, and noted signals on the SPX chart, provide clear signposts as to where that thesis would be challenged.  Trade safe.

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1 comment:

  1. Perhaps stocks have finally reached a "permanently high plateau" ? Even the plan to gradually remove QE hasn't put a dent in this bull market.