If we look that the S & P 500 we can see that we have broken the intermediate trend line. I mentioned this possibility in my October 6th post, though the crash scenario played out rather than a more gradual decline. The intermediate cycle should bottom any time now. We may see a further move down, but we should see a sharp rally soon. Once that rally does occur we should see either a retest of the lows or possibly a lower low. You can look back in February you can see the sharp two-day decline, a bounce and then we went to new lows before the markets recovered.
We had a very choppy recovery before the markets recovered and moved to new highs. I still am of the belief that the bull market is still in place. If that is not the case we should know fairly soon. In reality the markets have been moving sideways for the last year, today’s 3%+ decline has brought us almost back to where we started the year.
Sideways market moves can often fuel big moves in either direction. This consolidation went on for almost two years. Being late in this bull market, I wouldn’t expect as lengthy of a consolidation. Surely not two years! If this market is going finish off with another run, we should see new highs by December, with a top in 2019.
There is always the caveat that the elections could change everything. This bull market is long in the tooth and we shouldn’t be taking anything for granted. The market pundits have been pointing out that interest rates are the culprit. We’ve known all year that interest rates were going up, this is no surprise! We are simply going through the market cycle.
We are starting to enter the period of maximum financial risk, where euphoria and greed rule. This market correction appears to be nothing more than a step back from euphoria and greed. Corrections are beneficial to progress in the markets. We should see a very strong rally in the near term, if we don’t then all bets are off. It may get a little choppy but that is what the stock market is all about. Market moves just don’t move straight up and down, it takes time to prepare market moves.
McCellan Oscilator - Another Indicator
The McClellan Oscillator has also reached an extreme which indicates a potential market rally.
Remember 1987? The markets had been in decline for weeks and were down 15% before the crash. That’s 30 years ago and I was working at Dean Witter Reynolds. I made the call to get out before the markets crashed. I’ve been around awhile:)