Summary
- The market has moved into a major resistance zone.
- I am expecting a pullback over the coming weeks to provide a buying opportunity.
- How the market handles the first quarter of 2020 will tell us if the next 30% move is to the upside or downside.
- This idea was discussed in more depth with members of my private investing community, The Market Pinball Wizard. Get started today »
For those of you that have read my analysis over the last several months, I am quite certain you have thought of me as a perma-bear when it comes to the equity markets. Yet, I can assure you that is not the case.
In my history as an analyst, I simply make my determinations about the various markets I track based upon my objective analysis methodology. And, I can assure you that I have never been a “perma-anything.”
As one of the Seeking Alpha readers once noted about me:
“many SA authors are constantly about buying, others are constantly forecasting the next recession (they will be right... eventually) here we have an author in the gray area..he's neither perma bull or perma bear, he's perma profit”
Now that the market has been making new all-time highs of late, Wall Street analysts have been busying themselves with coming up with new targets for the bull market. If you have been following them, you would know that they now range between 3200-3350 in the SPX.
Yet, if anyone has read my work for longer than the last few months, you would know that my expectation has remained that the rally off the 2009 lows will not likely complete until the SPX is over 3800, as this has been my expectation for years. In fact, I still have the 4000 region as an ideal target as it stands today.
So, I am still quite bullish in the longer term, and have remained so. Even when the stock market was dropping down towards the 2300SPX region back in December of 2018, I was reiterating my expectations for much higher levels in the coming years. And, again, when all anyone could focus upon was the inverted yield curve which supposedly portended the end of the bull market, I continued to reiterate my long-term expectations.
However, to date, I have not believed we were ripe to begin that last rally to those long-term bull market targets upon which I have been intently focused for many years. And, while the current strength in the market has reduced the probabilities that we will see a much larger correction before we begin the rally to 3800+, at least based upon my analysis, I still think it is more likely than not that we see a much larger correction before we confirm we are in the last rally towards 3800+. While before we moved through 3115SPX, my expectations were in the 70-80% probability that we will revisit the December 2018 lows before the rally to 3800+ would begin, I now have to note that those probabilities have dropped to approximately 60-70% at this time.
But, what the market has now done in rallying to new highs before revisiting the December 2018 lows is that it has placed investors in a much more potentially precarious position than most even realize. You see, the structure with which we have now rallied can provide us with volatility over the next few weeks, set us up for even higher highs, and still set us up to break down to the December 2018 lows in 2020, but in much more dramatic fashion.
Now, since I think there is still potential for the market to continue in its break out, I will be buying the next pullback we see over the coming weeks. And, the structure of that next pullback/decline will give us indications as to where that buying point will reside. All the patterns I am tracking suggest the next bigger pullback is a buying opportunity for a multi-month rally even if we will eventually set up to break down in 2020. And, I have outlined to my members of The Market Pinball Wizard which index I potentially see outperforming during that rally.
However, as the market rallies into the first quarter of 2020, the structure of that rally will be of utmost importance in telling me whether I can continue to hold my long positions and whether we are on our way to the 4000 region over the next few years, or whether the market will not be able to maintain that bullish break out structure, and point us down towards the December 2018 lows just as everyone gets overly giddy about the new all-time highs the market is striking.
To be brutally honest, I recognize that we have potential for another 30% over where we reside today. But, I also need to protect the 5000 members who subscribe to our analysis, especially when I see the real potential for a 30% draw down. And when you consider that we also have 500+ money manager clients, you may begin to understand how seriously I must take my responsibility in protecting those who follow my work. So, the manner in which the market reacts as we look towards the first quarter of 2020 is going to be of utmost importance to me regarding the manner in which I guide those following my analysis.
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