Wednesday, December 16, 2009


I thought this was an interesting comparison. The last cyclical bull managed to reach the 50% retracement before falling into a mild corrective phase.

The S&P has now tagged the 50% retracement and despite extremely bullish seasonality and very positive economic and employment news it's been unable to push through this level. Smart money knows it's way too late in this rally to press the long side any longer. That's why we continue to see negative money flows and why the distribution days are really starting to pile up. Big money is stepping aside for the time being and the emotion driven retail trader just doesn't have enough firepower to push this market appreciably higher.

I know it's taking it's time but the correction will come just like it did in `04. I'm expecting the correction this time to unfold much quicker than it did during the last bull. Actually that multi month decline in `04 was the longest 2nd leg correction of all 7 bull markets spawned in the depths of history's most devastating bear markets.

Everything is moving much quicker this time, both bear and bull phases. I'm hoping the correction following this second leg will continue the pattern of rapid moves. Ideally I'd like to see something in the neighborhood of -10% to -14% in 3-4 weeks instead of 6 months.

A sharp violent correction like that would be just what the doctor ordered to reset sentiment back to extreme negative levels. And that's what we need to initiate the third leg up in this cyclical bull market.