The Fate Of Final Rallies

I have been talking recently about how this final blow-off rally since the sharp 20%+ crash into late December 2018 is tracking very close to the one that occurred from late October 1998 into late March 2000.

That correlation suggests that this rally could last into late May or so, at the height of the normal annual seasonal cycle that says, “Sell in May and go away”.

But wait. This is an election year and a highly contested one, with every incentive for the Donald to pull out all the stops to win: consumer tax rebates and incentives for investing in stocks near the top of the greatest bubble in modern history… Does that sound rational to you?

Donald’s middle initial “J” may go from standing for “genius” (his term) to “jerk”.

I showed in a recent article that the trajectory of this final blow-off from late December 2018 would project to a peak around late May of this year. But odds are that it should go longer in this unique election year with so much incentive for more stimulus, from the repo crisis to the coronavirus.

This table shows the final rally of every S&P 500 broader index bull market without a 20% correction since 1949 after World War II. The bubble market of 1987-2000, which more technically speaking began in October of 1990, is most relevant in time and gains to this one.

(Click on image to enlarge)

The range of the final rally gains are 29% to 68%. The average crash after has been 42%. But, mark my words, this one will be the greatest you see – and closer to 1929-32, between 70% and 90% after such an unprecedented bubble.

If this final long rally compares to the last tech bubble one from October 1998 into March 2000, it would last about three to four more months into late May to late June. The gains from here would be about 15% for the S&P 500 at around 3,900 and 20%+ for the Nasdaq at 11,500-12,000.

This final bull market peak is now months away, not years, as many are suggesting. I see a peak between late March at the earliest and February of 2021 at the latest. The best range would be 11,000-12,000 between late May and the election.

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