Many will simply read the headline to this article, and use it as support for their belief in the market striking a multi-year top right now. I mean, aren’t headlines like this proof that the market is overheated?
Well, the answer is a definite “sometimes.” You see, back in 2015 and 2016 I was writing articles with headlines saying that we are going to target the 2500SPX region. And, if you thought that those headlines were portending the end of the bull market, then you were clearly wrong. So, consider, maybe this headline is prescient rather than a contrarian signal.
While it is quite profitable at times to be a contrarian in the market, at other times it is downright dangerous. When you are standing in front of a bull who is charging ahead at full speed, you either get gored or trampled. The key is to know when the time is ripe to be a contrarian rather than simply being a contrarian because you “feel” the market is too high.
And, I am quite certain you have read all the articles constantly being published about one matrix or another that presents the “bear case” as to why the market will top today. The problem is that those articles have been published EVERY day for the last year and a half. But, since bearishness sells, we can understand why they are such click-bait, and will garner heavy hits for those writing such articles. And, Seeking Alpha is clearly not immune from such writers. The problem is that they do not serve investors well.
Remember what Keynes said: “The market can remain irrational longer than you can remain solvent.” But, more correctly, the market is always irrational. It is not based upon “logic,” or else one would engage the services of a logician to prognosticate market direction. Consider when was the last time you saw a logician identify a turning point in the market?
Currently, I am seeing more and more people believing that this current rally will simply continue unabated. As the market continues higher, their bullish calls become stronger and stronger. This is simply how market sentiment works. So, rather than expecting a crash, many are moving towards the belief that nothing will stop this stock market, since no negative “news” has been able to put a dent in this rally.
“From a purely technical point of view, if a bear market is born this month it would have to be considered the result of some sort of ‘immaculate conception,’” wrote Doug Ramsey, chief investment officer of the Leuthold Group.
Ramsey cited a “remarkable level of bullish ‘agreement’ across the U.S. stock market” for his positive views on the market, which he said “stacks the odds heavily against an imminent cyclical top,” although he said that it was still possible that stocks saw a “short-term setback.”
Well, when was the last time that a remarkable level of bullish agreement has led to a major rally continuation? If the money managers are “all-in,” I am not sure there is a lot of upside left in this market before we finally see a multi-month pullback or larger consolidation.
Several years ago, we set our target for the S&P500 between 2537-2611. While it may not seem like such a stretch of the imagination right now, consider that the market was in the 1800 region at the time we set this target, and most market participants were awaiting the certain market crash just around the corner. In fact, we maintained our strong conviction for this rally to 2500+ no matter who won the election in 2016. And, the fact that Trump won and we still rallied, despite most expectations to the contrary, supports our larger degree perspective.
But, now, we are in what we consider a “topping” zone. While the market can still push higher by another 50 points or so, I think we will be moving into a multi-month pullback as we move into 2018.
I have attached my long-term chart, which I have posted publicly on occasion over the last several years. And, for those that recognize it, you will know it has been quite an excellent road map for the US stock market. In fact, while many were calling for the “crash” back in early 2016, this chart was pointing straight up towards the 2500+ region.
Ultimately, this chart suggests that we will not likely see a 15%+ correction in the market until we complete waves (4) and (5). But, even after a 15%+ correction, which seems to be setting up for 2019 (just in time for our next Presidential election), the market will likely be heading higher into the early 2020’s, and will likely eclipse the 3000 region no matter who is elected President in 2020.