Special Update: Why the bears have missed the boat and why the coming pullback will be their last chance to climb on board.

The chart below illustrates that we have very likely entered a new bull market as I’ve been forecasting with my wave count and, which for the immediate term at least, is supported by the Alphahorn Swing System.

Only 12 times in 20 years have we had 90% of S&P components over their 50 day simple moving averages, today that number has risen to 98% over the 50 day SMA. And you can see the 12 month returns for the previous times this has happened are quite favorable in all but one instance. Once again my thesis for bullish equities and the strong dollar go hand in hand. You have to remember that what is important is relative strength. Yes the days of fiat currencies are probably numbered. But, for the time being the USD is and will be viewed as the safest haven for at least the next several years. And, as long as the USD gains strength relative to other currencies people in those countries will continue to buy US equities. Central banks around the world continue their MMT programs in an effort to inflate away their debts. In addition to the monetary policies of central bankers outside the US, the rest of the world holds a tremendous amount ~$13 trillion of US Dollar demonitated debt. The result of this has been a tremendous shortage of US Dollars. Unlike the USA, debt issuers of US Dollar denominated debt outside the US don’t have the ability to create dollars short of exporting goods to the US. As a net result, the US Dollar continues to appreciate vs. virtually all currencies. So, if you live in a country whose currency is being devalued vs. the USD would you rather buy bonds that are going to be inflated away or US equities? Say your local currency loses 5% to the USD and you invest in an US equity that pays a 4% dividend and that equity appreciates 6%, you’ve just locked in a 15% return. It’s amazing this simple concept is being lost on so many pundits both on the Bloomberg’s of the world and on the Internet. Some very sophisticated investors with nice pedigrees are missing this waiting for the other shoe to drop on equities. I believe they are wrong and are missing a great opportunity to invest at current US equity levels. The next five years will be one of the greatest bull runs in US equities in history according to my thesis. The dollar won’t move in a straight line up. It’s interesting, while the rest of the world flocks to US equities, it’s Americans who have been sitting on the sideline too myopically focused on the domestic economy to realize that sometimes you have to ride the healthiest horse at the glue factory. It looks like the greenback might have completed wave 1 off the [B] lows and if so, then might be witnessing its wave 2 pullback before its next big move up. This would fit well with the SPX count that calls for a pullback in intermediate wave (2) [See lower down]. Inflows to US equities from outside the US could pause as other currencies gain strength vs the USD, but as the USD returns to strength, then expect US equities to follow suit.

However, I do not believe that all the indexes are marching along in lock step. I believe there are a number of indexes that have already completed intermediate waves (1) and (2) and are now in intermediate wave (3). These indexes appear to be about to complete minor wave 1 of (3) of [1]. Once complete they will see minor wave 2 pullbacks, but I would expect the indexes shown below could see relatively smaller pullbacks than say the Nasdaq whose best count is that intermediate wave (1) is only now completing. That said, I don’t think we’ll see too deep of pullback for the Nasdaq or the SPX that are (might be in the case of the SPX) entering intermediate wave (2) pullbacks. The bears that remain on the sidelines recognize that they’ve missed a great opportunity and the coming pullback will present there last best chance to enter US equities over the next 18-24 months.

In contrast, the Nasdaq and perhaps the SPX most eligant count is that intermediate wave (1) is looking to top and intermediate wave (2) is to follow.

About alphahorn

I received an MBA from Columbia University’s Graduate School of Business in New York and am a Wall Street veteran. I’ve worked for a number of investment banks including Smith Barney and First Boston/C S First Boston in New York. Over the years, I have developed my own Proprietary Swing System and I combine that System with my own Elliott Wave Analysis to trade.
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