Seen in long term perspective, the current cyclical bull market is exhibiting early characteristics
of an emerging secular bull. It started in 2009 from a historically very depressed base and
has maintained a trajectory over the past four years that is consistent with the early phases of
a secular bull. The SP 500 is also hyper-extended compared to very long term price channels
and given its continuing trajectory, is now bubble-eligible. This is a very unusual development
for the US stock market.
The SP 500 (SPX) has experienced 20% annual gains in price compounded off the 2009 low
and has maintained this powerful rate of ascent since the autumn of 2011 as increasing
investor confidence allowed the p/e ratio to continue to expand. This sort of consistent strong
price progress above the very long term channel top is unusual but is not without precedent
(viz. 1995 - 2000).
It is now simply too early to tell whether this is a price bubble of some considerable magnitude
or whether corrective events will alter the trajectory of the market sufficiently to eliminate
the bubble as a probable outcome.
The SPX will roll into 2014 on zippy momentum with a weekly MACD measure near +50.
Powerful annual finishes usually set the stage for market corrections of consequence in the
following year, although stocks may not get dumped until the May - Aug. interval as positive
momentum can continue for several months into the new year. The SPX is extended and
overbought on an intermediate term basis and could correct to the low 1700s in the early going
without cracking the +20% annual price trend. SPX Weekly
Confidence and sentiment measures are running very high.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!