Long-term trends and behavioral tendencies likely to influence U.S. Equities in 2017

U.S. equities entered a secular bull market in 2013, breaking out above a 13-year range in dollar terms, and staging a bona-fide reversal in gold terms.

A cyclical bull market began in February 2016, evidenced by classic breadth thrust and a definitive price breakout.

The February 2016 bottom qualifies as a four-year-cycle low, suggesting a durable rally into 2018 or longer.

Valuations are stretched, but the earnings cycle appears to have bottomed.

A narrowing of market breadth is likely to precede the next important top. Defense remains important. Let’s keep drawing those “lines in the sand.”

S&P 500 and Dow/Gold ratio… “Secular” bull market

The Market Generated Classic Thrust in April & July

Breadth thrust evidences a return of liquidity to the far reaches of the market.

A basic tenet of technical analysis – unfortunately not taught in business school – is that thrust occurs near  the beginning of bull-market advances, not near the end, as many investors suspect.

“Sector Thrust” in April

“Breakaway Momentum” in July

Average post-BAM experience suggests further upside ahead

Price breakout suggests further upside ahead

The correction was deep by internal standards

Valuations are stretched… but within modern range

Earnings appear to have bottomed

Breadth divergence has preceded most important tops

Watch for narrowing breadth in 2017/18

“Bull markets are strongest when they are  broad, and weakest when they narrow to a  handful of blue-chip names.” –Bob Farrell

Keep drawing those “lines in the sand”

And keep an eye on the real economy…

Click on the next article in this series