Chimpcast: Climbing the Wall of Worry

As readers know, we have been persistently bullish on the US stock market through thick and thin. Last week, stocks were strong again shrugging off a world of bearish news.

The simple fact of the matter is that our indicators, our seasonal studies, and their cycles continue to provide bullish forecasts for the foreseeable future. As we go to press with this report, there are still no indications of a top.

Perhaps the one potential negative at this juncture is the fact that the volatility index market sentiment indicator (DSI) reads extremely low. Typically, when market sentiment reads low we are close to a bottom. The bottom in advance tends to result in an opposite situation for the stock market. Although the relationship is not one to one, there is a correlation, and that looms large with regard to the current stock market strength.

Given that the volatility index is a short-term indicator, the low sentiment levels at this juncture do not forecast a major downside turn but rather a short-term correction. Consequently, our forecasts and expectations remain as follows:

  • The long-term cyclical trend in US stocks remains bullish
  • The intermediate term trend in US stocks is just recovering from support and also remains bullish
  • The short-term trend has bottomed consistent with the seasonal pattern over the next month
  • The seasonal pattern in stocks remains bullish through year-end
  • Consequently, we remain long-term, intermediate-term, and short-term bullish on stocks with the one consideration as stated above which could result in a brief but significant short-term correction down
  • We continue to recommend buying stocks on declines to support and holding stocks for the intermediate longer-term
  • Finally, market sentiment based on small trader opinion using the DSI is not dangerously high at this juncture. In fact, DSI is neutral suggesting that we are not close to a top has yet

Best of trading

Chimp Jacob

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