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 U.S. 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.
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Chris Vermeulen
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