You know the market has hurt investors when the analysis becomes a plethora of "maybes," "coulds," and "should bes." The days of putting yourself out there for all to see has been replaced with putting yourself out there to make sure you aren't humiliated by being wrong. I don't believe in such timidity in analysis.
With that said, I will offer the following proclamation: The markets will end 2014 at new highs after making a low in October.
I base this on two pieces of analysis that nobody is talking about:
1. The 200 day moving average being broken for the first time in something like 500 trading days. This is a record. It's a tremendous record, in fact. The record should end this week as the S&P is an inch away from breaking the 200 day MA to the downside.
First, let's talk about what the record signifies. The fact that persistence on the bid for the markets has been so relentless to not allow the S&P a decent pullback for nearly 500 days is NOT bearish. It is a testament to the strength of this bull market. Strength that will not subside from the first "real" pullback of this bull market. That bid will return with the force of a million bearded dwarfs into the seasonally favorable period of November-December.
Let's look at past data dating back to 1990 with respect to previous "record" runs above the 200 day MA:
A. The second longest run after the present one was from 1995-1996. The break of the 200 day MA took place in July. Just a couple months later the S&P was 10% higher. A couple years later it was close to 100% higher.
B. The 3rd and 4th longest runs took place in the 50s and 60s. Too far back to have any relevance. However, the fifth longest run took place from Oct 92-Mar 94. After the S&P 500 broke its 200 day MA in March 1994 it declined by roughly 5%. That was the low...for the decade.
C. The 7th longest run took place from Aug 96 - Oct 97. The break of the 200 day MA was a one day event here. 6 months later the S&P was higher by 30%.
2. Speaking of 1994, there is an interesting correlation occurring in the Russell with respect to that year.
See chart below:
click chart to enlarge
Russell 1994 vs. 2014
There are other reasons, as well. Such as leadership, earnings, interest rates, the Dollar, oil prices, valuations etc. But I want to keep this focused.
Those speaking of this being a top of any consequence should immediately be given a dunce cap, put in a corner and deleted from your financial reading list for a blatant act of sheepish incompetence.
