Is This An Exhaustion Run....Part Two
Back on March 23rd I posted a short term projection for the S&P 500 to retest its prior highs to the upside with a double bottom micro pattern. Today, nearly all of the indices accomplished that move. The Nasdaq 100 has yet to do so but it is so close I expect that to happen today or early this week. Two for two on short term projections over the last few months so maybe it is time for the markets to embarrass me. If one takes a look at the macro pattern on the daily chart, one could argue the S&P will retest its 2000 highs over the next few months. Patterns aside, this is the weakest rally in years so the bulls will have to earn their money from here. It is interesting to note that over the last year, as we've made higher highs in the major indices, we've had less and less participation from individual stocks and sectors. This is consistent with expectations of any bull market as speculative stocks typically peak before the last rally of any bull cycle. Penny and pink sheet stocks were off the charts with speculative fervor in early 2006. Since then, many leaders of this cycle including coal, oil, home builders, natural gas, mortgage related companies, specialty retailers, etc, have all failed to participate substantially for some time.
As I mentioned a few months ago on the precipitous drop in late February and early March, my intermediate model remained invested on the long side. So, we have a situation where my long term model is defensive or in cash and my intermediate term model is still invested on the long side. Does that seem a little odd? It should but let me explain. My long term model is based on the broad market. My intermediate term model is a trading model based on the S&P 500. So, it really does make sense. The rallies have narrowed considerably and the S&P is typically a strong late stage performer as money rotates into large capitalization investments. Where do we go from here? That's a good question. As I mentioned early this year, I would anticipate a "new" date for the end of this bull market to be September. Does that mean we rally into September? Maybe. Does that mean we start to correct from here and eventually rally into September? Maybe. No one knows exactly what will happen or I'd be picking the next winning lottery ticket. It is simply a guesstimate. But, as I mentioned in the earlier "Exhaustion" post and in this post, this has been a very weak rally and after filling these gaps created on the downward slide a few months ago, I would be very concerned about an ability to drive much higher without more participation.
Picking tops is like winning the lottery but attempting to understand cycles is a passion of mine. There is a time based component to making market projections and those are very difficult because no one clearly understands this dynamic. In other words, prices are a function of time and other esoteric factors in my estimation and have more to do with the mathematician Rene Descartes and less to do with economics. That is why economists and their projections are typically poor indicators of stock market returns.
As I mentioned a few months ago on the precipitous drop in late February and early March, my intermediate model remained invested on the long side. So, we have a situation where my long term model is defensive or in cash and my intermediate term model is still invested on the long side. Does that seem a little odd? It should but let me explain. My long term model is based on the broad market. My intermediate term model is a trading model based on the S&P 500. So, it really does make sense. The rallies have narrowed considerably and the S&P is typically a strong late stage performer as money rotates into large capitalization investments. Where do we go from here? That's a good question. As I mentioned early this year, I would anticipate a "new" date for the end of this bull market to be September. Does that mean we rally into September? Maybe. Does that mean we start to correct from here and eventually rally into September? Maybe. No one knows exactly what will happen or I'd be picking the next winning lottery ticket. It is simply a guesstimate. But, as I mentioned in the earlier "Exhaustion" post and in this post, this has been a very weak rally and after filling these gaps created on the downward slide a few months ago, I would be very concerned about an ability to drive much higher without more participation.
Picking tops is like winning the lottery but attempting to understand cycles is a passion of mine. There is a time based component to making market projections and those are very difficult because no one clearly understands this dynamic. In other words, prices are a function of time and other esoteric factors in my estimation and have more to do with the mathematician Rene Descartes and less to do with economics. That is why economists and their projections are typically poor indicators of stock market returns.
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