This blog post is all about "Is This Market Rally Going Higher?"
- it is not about whether or not this market should go higher, and that is a big difference.
Almost any news can change the short-term direction (days/weeks) of the market, but only strong buying or selling volume can keep a trend going intermediate-to-long-term (like weeks/months). The four cycles in the long-term ups-and-downs in the market are something like that below:
The steps in recovering from a bear market are (see the steps on the left side of the graph above):
1) the big guys buy at the market bottom (remember, they cause the bottom, not call it)
2) aggressive little guys who sold low, then sell their bonds and get back into equities when they
are still low
3) average little guys who sold about halfway down, also move money from bonds and get back
in the market
4) conservative little guys (who swore off the market), cave in and buy near the top (again and
The steps after a long up market (like now) are shown below (also see the steps on the right above):
1) after the little guys have 80+ percent of their assets invested in equities, the big guys start a
- we are not there yet, because the little guys have plenty of buying power tied up in bonds
- the SPY now is about $150.7/share and the all-time high from Oct'08 is about $157.5/share
- we believe that the big guys will let the little guys push the market to the all-time high (and
- the big guys, of course, will be trying to start "panic buying" from the little guys near the top
- in reality, the big guys are not calling the market top, they are causing it
2) after the SPY makes new highs and the market gets even more "overbought", the big guys will
3) the big guys' heavy selling will cause a big downside jolt in the market and the little guys will run
for the sidelines
4) as the first wave of little guys sell the market lower, more little guys will sell in stages all the way
to a new bottom.
In essence, we do not believe that the big guys will let this market "crash" until the SPY has "tested" its all time high at $157.5/share This might not happen until we have a small pullback, but we do think it will happen. And, we think there is a good chance that the little guys will push it that high, OR higher. But, we also believe that a big drop is possible (even likely) after that.
Either way, MIPS will catch the new trend and get us on the right track !!!