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(5/28/16)
I tend to look at market history going way back to the 1800's as
it gives a better perspective on how things have evolved over the last 200
years. As you can see the S&P Comp, in terms of "real
dollars", has always trended higher despite some substantial corrections
along the way (points A to B).
Meanwhile one can add a longer term upward channel by using
simple math. As you can see below its been very rare for the S&P Comp
to be at an extreme level either to the downside (blue line) or upside (red
line). Buying opportunities of a lifetime have presented themselves when
the S&P Comp has tested the lower end of its upward channel (points
C). The last event was in the early 1980's.
On the flip side when the S&P Comp has risen above its
upward channel this has eventually been followed by substantial corrections
(points D to E). As you can see the rally since 2009 has allowed the
S&P Comp to rise back to the top of the upward channel once again (point
F).
This is why I still have concerns about the longer term
outlook for the market. Each time the S&P Comp has exceeded the top of
its longer term upward channel (points D) it has eventually dropped back below
its longer term mean as represented by the green line. Currently the
longer term mean is near the 1000 level so that would be a 52% correction from
current levels.
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