The market has not built enough time up here to sustain a long term rally. But with more time at lower levels then accumulation can develop and the market can continue. However, from current levels the market is not on sturdy ground. The market is stretched up at 165 and support is down at 149 and implies a downside risk of 10%. The time of the last consolidation was 12 weeks and we are in the 12th week of the rally. So, time has run out. Since the market has needed 20 weeks of accumulation before each previous rally, it is to me that it only took 12 weeks in this latest accumulation.
The factors driving the market until now have been clear (stock buybacks, growth, Fed driven low interest rates, equity fund inflows), but we are ahead of rational long term valuations and I would not recommend committing new funds to this market.
I think this year will be at best a sideways to down year as investors still have very few choices on where to invest and stocks will be a focus, primarily because money has flowed into equities and out of bonds and corporations have repurchased stock and issued debt. Corporate leverage is up. Margin buying is at record levels. Investors are optimistic again. Analysts seem unanimous in forecasting higher prices.
This is a great time to do the opposite and walk away.
I also republished this at the highs this summer to point out that I felt we had 10% down potential going into year end.