After the huge rally in the stock market, from the end of World War II to the exhaustive top in 1966, there were three bear markets – each one worse than the one before. They are shown as grey, shaded boxes on the chart below. Once those ended, the market began to rally – eventually culminating in the huge technology boom market of the 1990's. Since then, there have been two bear markets. Is this the beginning of the third?
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We continue to think that this rally has more room to run on the upside, but that it will eventually give way to the over-riding bear market trendline.
Near-term, there is support at 1970 and then at 1950 (the top of the "W"). It seems that the pullback to 1970 this week was about all that the bears are going to get in the short-term.
Equity-only put-call ratios continue to drop steadily, and that is bullish for stocks.
Stocks roared ahead for about half the day on Friday, before finally selling off after 2pm. The overbought conditions continue to grow, though, and with them the possibility of a sharp, but short-lived correction.
The market has exploded to the upside this week. Some overbought conditions are beginning to appear, but all the indicators are on buy signals right now.
The move above 1950 completed a "W" bottoming formation on the $SPX chart, very similar to the one that existed last October. It should now be able o advance to the downtrend line of this bear market.
Equity-only put-call ratios continue to be bullish. They are declining from lofty (oversold) levels and are solidly on buy signals.
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The bulls scored a major victory this week, by engineering a breakout and close above 1950 on Thursday. That completes the "W" bottoming formation. So for now, the near-term outlook is bullish.
Put-call ratios remain bullish. All three of the put-call ratios gave buy signals right at the February 11th bottom -- an excellent bit of timing, especially considering that these are 21-day moving averages.
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