Friday, September 12, 2014
I'd like to update my views on the general trend in US stock prices.
The top three charts show my favorite trend indicators: the Dow, the S&P 500, and the NYSE advance-decline line. All three are above rising 50 day moving averages and well above rising 200 day moving averages. This is a bullish configuration.
About 5 weeks ago the averages made a low at which bearish sentiment was the highest in nearly 2 years. This shows on the bottom chart of the 5 day moving average of the CBOE equity put-call ratio via the sharply defined high a few weeks ago. Generally such bearish extremes in the context of a bull market are followed by substantial advances lasting at least 2-3 months. So by this standard the upswing has at least 4-8 weeks to go yet.
I think the S&P 500 will reach 2080 and the Dow will get to 17750 before another substantial drop becomes likely.
As everyone by now knows a good part of the upswing in stock prices world wide has been fueled by an expansion in central bank balance sheets. The Fed is about to halt its current quantitative easing program in October. But it has passed the baton to the European Central Bank which is planning its own QE program. The Japanese Central Bank is still committed to its own program and the recent weakness in the yen is evidence for that.
This world-wide expansion in liquidity is ongoing and bullish for world stock prices. So even while the Fed is halting its own QE program it is unlikely that a bear market will start in the US until the ECB and JCB halt their own QE programs.