A Range-Bound US Stock Market

It may not seem like it, but there's every reason to believe US equities are locked in a multi-year trading range with 2700 for the S&P 500 as the center point. The anticipatory earnings run up in stocks in 2017 aided and abetted by the US tax cut act helped boost corporate profits enabling a powerful surge in earnings in 2018. That fact plus low interest rates provided - in enough professional investor minds - with the justification for higher valuation levels. Since then, in anticipation of sluggish earnings growth in 2019 coupled with the now defunct Fed policy of normalization, US stocks have flattened out (albeit with some degree of increased volatility) into the multi-year trading range. Ever its forward looking nature, the culmination of the trading range will be made apparent with either (a) and upside breakout above the range or (b) a downside break to the lower end of the range and, most probably, lower with the trading range being considered a consolidation or topping action.

Investment Strategy Implications

With no recession on the horizon yet an economic expansion well passed its historical use-by date, prudent professional investors will wait for better visibility re earnings 12 months hence (which is to say 1Q2020). Alternatively, imprudent (a/k/a impatient) professional investors may push prices higher just because, as in excess investment liquidity and the pressure to perform via increased risk taking. The market intel gleaned from the momentum tools like the Mega Trend will help inform the advisable course of action.