I think investors are coming to the conclusion that central banks can’t push the market higher anymore. It’s taken a long time for people to realise this, two or three years ago I was warning that investors would lose confidence in the central banks and that would coincide with the top in the stock market. Well, it’s incredible how people can remain optimistic for so long. Does that mean we are near the top now? Anything is possible but probably not as per my forecast.
I am not saying we are in a bull market, I am saying the bull trend is coming to an end. We could see higher prices in the short/medium term. It will take more than a 3% or 4% decline in the S&P to kill the appetite for stocks in the US. US investors see any decline as an opportunity to buy more stocks, the S&P has been one of the most resilient indexes I am watching. Each time the S&P dips, it rallies to new highs and the short to medium term pattern looks bullish to me.
The most reliable indicator of market tops is the 34-day BTI, when this indicator is overbought there is a high probability the FTSE 100 will decline for more than two weeks. It becomes overbought when the stock market is driven by a high level of optimism. This indicator was overbought in August and the FTSE declined, the decline is one month old. Right now it's neutral.
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