My Stock market trend analysis is likely different from what you think is about to unfold. Keep an open mind as this is just showing you both sides of the coin from a technical stand point. Remember, the market likes to trend in the direction which causes the most investor pain.
Since the stock market bottom in 2009 equities has been rising which is great, but this train could be setting up to do the unthinkable. What do I mean? Well, let’s take a look at the two possible outcomes.
The Bear Market Trend & Investor Negative Credit
The S&P500 has been forming a large broadening formation over the last 13 years. The recent run to new highs and record amounts of money being borrowed to buy stocks on margin has me skeptical about prices continuing higher.
Take a look at the chart below which I found on the ZeroHedge website last week. This chart shows the SP500 index relative to positive and negative investor credit balances. As you can see we are starting to reach some extreme leverage again on the stock market. I do feel we are close to a strong correction or possible bear market, but we must remember that a correction may be all we get. It does not take much for this type of borrowed money to be washed clean and removed. A simple 2-6 week correction will do this and then stocks will be free to continue higher.
Monthly Bearish Trend Outlook
Below you can see the simple logical move that should occur next for stocks based on the average bull market lasts four years (it has been four years) and the fact the negative credit is so high again.
Also, poor earnings continue to be released for many individual names across all sectors of the market. While corporate profits may be holding up or growing in some of the big name stocks, revenues are not. This means the big guys are simply laying off workers and cutting costs still.
Overall the stock market is entering its strongest period of the year. So things could get choppy here with strong up and down days until Jan. After that stocks could start to top out and eventually confirm a down trend. Keep in mind, major market tops are a process. They take 6-12 months to form so do not think this is a simple short trade. The market will be choppy until a confirmed down trend is in place.
Monthly BULLISH Trend Outlook
This scenario is the least likely one floating around market participant’s minds. It just does not seem possible with the global issues trying to be resolved. With the Federal Reserve continuing to print tens of billions of dollars each month inflating the stocks market this bullish scenario has some legs to stand on and makes for the perfect “Wall of Worry” for stocks to climb.
The US dollar is likely to continue falling in the long run, but I do not think it will collapse. Instead, it will likely grind lower and trade almost in a sideways pattern for years to come.
Major Stock Market Trend Conclusion:
In summary, I remain bullish with the trend, but once price and the technical indicators confirm a down trend I will happily jump ships and take advantage of lower prices.
Remember, this is big picture stuff using Monthly and quarterly charts. So these plays will take some time to unfold and within these larger moves are many shorter term opportunities that we will be trading regardless of which direction the market is trending. As active traders and investors we will profit either way.