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Strong U.S. Dollar Weighs On Blue Chip Earnings

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Earnings season is well underway,…

Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

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The State of the Trend

In a year full of surprises and challenges, the major averages had a very conformist performance deviating little from established precedents.

For example, in May '16, based on annual price advance and bottom reversal data, we gave an end-of-year price target of 2240 for the SP500.

The major averages followed the 20 year seasonal and 100 year decennial pattern very closely as well:

Dow Industrials Correlation

SPY Correlation

QQQ Correlation

The more pressing question now is what can we expect from 2017? Looking at the decennial pattern, the picture is mixed: 6 bullish and 6 bearish years. Year 17 in the 20 year cycle, however, tends to be more bearish than the average, and produces steeper declines.

20-Year Cycle

1987 stands out as the DJIA closed barely positive following a 43% drop in October. It should be noted, however, that the index had risen about 250% between 1982 and 1987. Currently, the DJIA is up 100% from the 2012 low, and 200+% from the '09 low.

In terms of longevity, this is the second longest lasting rally of the last 130 years. Therefore, odds favor a 20+% correction any time now.

Dow Historical Rallies 1896-2014

Going back to the decennial cycle we notice that bullish and bearish years follow a different seasonal path. Bearish years usually follow a down-up-down-up pattern (May 19, July 14, October 27), while bullish years follow an up-flat-up-down-up pattern (January 20, April 7, July 25, October 31).

For now, we'll start with a clean slate based on average projections and a few key angles:

S&P500 Daily Chart Projections
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