What I'd like to show you here with this chart is the price action of the US stock market in a unique way that shows "sentiment" (see the blue line labeled "RgMov" together with a price & pattern that has many people nervous for the past couple of years. Sentiment as measure by the blue line "RgMov" peaked 2 years ago in August 2014 and has been declining in a significant way that is reminiscent of major stock market bottoms as in 2003 and 2009. Note the magnitude of the drop and the duration and severity. We have had many months where all or most of the price action has been on the downside, which makes people "feel" like stock prices are always having a rough time.
Compare this pattern of "psychology" which prevailed at the 1993 time frame and led to a sideways 1994 market before the bull market continued in 1995-1999. Note how the 1987 crash was the PEAK event and then there was CONVERGENCE during the rally phase into 1994, for 7 years. Note also how the 2009 market was the PEAK event and there was CONVERGENCE during the rally phase into 2016, for 7 years. Percentage (ATR%) declined to its lowest level this month as it did back in 1993. People naturally get scared when declines to a low level, as it has been "THE CALM BEFORE THE STORM" in the 2007 example, so analysts, commentators and investors are looking at this pattern and drawing the conclusion that we are repeating 2007 again.
I think we are repeating 1994 right now and if the right tax laws change as they did in 1994 where Bill Clinton reduced tax rates on start-ups to 15% and made the "internet tax-free" - we could see upside. In 2007, to explain why we aren't repeating that time frame, the Gov't slammed the breaks on bank lending by cutting bank leverage from 40:1 down to 11:1 which crushed real estate, lending and asset prices. I don't see that now or anytime on the horizon since we are at 11:1 leverage now. This time in the US is closer to 1993-1994 than 2007-2008.
October 23, 2016 9:29PM EST
Here is the example from 1982-1983 that set-up a rally after an extremely low volatility level and a rising, narrowing and converging price advance.
I don't know why we as a people don't demand more "prove it" types of logic to back up claims, but the proof is in the future over many iterations.
I hope my charts and published comments are helpful and useful to you so you can profit in the financial markets.
I know, I have published long term projections of the movement of the overall stock market many times with eery accuracy based on rational, logical back-and-forth tug-of-war between bullish and bearish factors in the marketplace.
What THIS CHART IS, however, is very different. This is PRICE-ACTION-INDUCED-SENTIMENT that can predict future price action. Using PRICE ACTION to PREDICT PRICE ACTION may seem logical to many of us chart-watchers, but it is not logical to the rest of the world.
What THIS CHART shows is the people were expressing their extreme bearishness by selling stocks, but all of the while stocks were not breaking down in price. What this means is that we completed a bear market at the recent low in November and even though we can't believe why a new bull market can start from "THIS LEVEL OF VALUATION" (we all hear this argument all year long), the market is saying that enough people are on the sidelines, out of the market and unless something changes dramatically, the sideliners will likely come back into the market over time and at least build a level of support at current levels.
Here's wishing us all many Happy Returns for 2017 and I hope you have been enjoying a fantastic 2016 with the variety of successful market calls this year.
Tim 12/23/2016 1:43PM EST
The concept that goes into making the RgMov indicator is shown in this graph, which reveals plenty of downside movement in the market during the month, which led to massive short positions that built up over the past 6 months. I can theorize it will take as much "positive movement" in the market to overcome the significant negative movement, before the market balances out and then we can have the chance for a downside break. Any setbacks before we exhaust the upside movement should be buying opportunities. Sometime in Summer we should be out of "upside movement" which will set up a decline into year-end, which matches the 2017 Forecast I made in January.
But, the biggest issue that your graph above is showing is that even though the range movement is saying that we should have had the correction, it is a HUGE ROLLING correction that is progress. Too many good stories and the bad stories are being punished. This is 'goldilocks' at its best. Yellen wants to keep her job and renew her contract, and she is 'watching her words' whereas Bernanke and Greenspan are both saying this market should get a consolidation (different times in the last 6 months). So, you see, how this can probably be interpreted as Institutional-Political-Economist Manipulation.
Either way, guard the principal, and be ready to grab some great ideas when they correct. UL was a good steal, but took off and got 'recognized'.