Technical bullish rationale for the next 3-4 months:
After two months of high volatility, the market has moved into positive territory for the two months left of the year although we can expect the pace of gains to slow. All indicators are moderately bullish:
1. The index weekly chart shows successive higher highs and higher lows. The upswing, although, appears to have flattened for most part of this year and more: is curently recovering from the August-September dip.
2. ADX line shows an above 25 reading which indicates a fairly strong trend but the line is flattening which possibly is suggesting a slowdown. DI+ is climbing and almost crossing above the falling DI- line which, if materialized, is another positive sign.
3. Squeeze momentum indicator is not very helpful as it doesn´t show the market has entered a low volatility squeeze( price congestion and the subsequent explosive move ). Not yet. So, the current up-trend continues.
4. The advance-decline line also reversing upward from this automn plunge but still in the low half - losing internal strenght / steam.
5. Momentum heading higher, naturaly. No surprise here.
Fundamental view:
I consider that the current bulish sentiment is mainly sustained by the easy money policies provided by all the major Central Banks and, hence, it won´t last.
The Main Street long term view is not pretty. China´s economy has slowed considerably. What´s taking place in China affects the United States. In order to prevent the economic slowdown from becoming a disaster the Chinese government will continue to implement creative measures( i.e. devaluing its currency and possibly other monetary measures ). This will increase the value of the dollar which will consequently lead to declining demand for US products overseas hurting even further the american multinationals that will be forced to cut costs( possible lay-offs)
The other Central banks around the world are also devaluing their curencies trying to keep the boat afloat which will further help the dollar rally.
Other markets around the world ( especially the commodity-based economies) will be hit by the China´s slowdown as they are large exporters of energy and materials to China ( we actualy can see that happening already).
All this added to a deflationary scenario started back in 1998-1999 Asian Currency Crises. Deflation threat growing in the global economy.
In my opinion the odds are 50-60%, that a big correction or even a recesion will happen at some point in 2016.
Vasile Lupu