E Bull Market Peak?

Bull Market Peak?

At what appears to be the completion of an outstanding bull market for equities, it is appropriate to review our checklist for a top. This study will include a review of critical fundamentals, such as the yield curve, credit spreads and industrial commodities. It is an approach we use at potential cyclical peaks.

Checklist

1. Is the market up when it should be? Yes, with the April “Springboard Buy” our target for an important high became “around June”. The previous Springboard signal occurred on November 3rd, ending a period of uncertainty. The Springboard is a technical model designed to identify “dips” in a flat to rising long trend.

2. Have there been signs of speculation? Yes, momentum and sentiment numbers for the general market have been exceptionally high. The number of stocks in sensational rallies has been reducing, typical of the end of a bull market. These, such as Amazon (AMZN) and Microsoft (MSFT), are being monitored for individual opportunity. When the hot leaders climax and fail is important ending action.

3. How sound is the basic story supporting the bull move? It is not so much the soundness of the story, it is that it is in the market. The Trump Rally has reached excesses in bringing the public in. It will take some time to implement a Great Reformation.1

4. Aside from the Reformation, what about the underlying economic expansion? As weak as it has been, the expansion has been on since June 2009. On the Treasury curve, back to 1860, it need not invert to signal a recession. Just approaching inversion and then reversing has been enough to prompt a credit contraction. The action in the credit markets is not as clear as it was going into the peaks of March 2000 and October 2007.

5. On May 31, a “Hindenburg” registered. This involves the number of 52-Week Highs and 52-Week Lows, plus other stuff. While each signal has not been followed by serious liquidation, each severe liquidity problem has been preceded by a “Hindenburg”. One registered in June 2007 and on October 15, 2007. The last one was in July 2015.

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Disclosure: None.

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