The higher high in the S&P 500 has been much later than most indices, but you can't dismiss the message that is being sent. Since 2008 the Federal Reserve has been trying to light the fuse, to get the fire started, but the intense skepticism - fear - and the damage resolution from the housing crisis have served to dampen the flames. The stock market is now telling us that the flames are starting to catch on.
However, we now have a very overbought stock market. As of yesterday's close, the 21-Day Oscillator (orange line) moved up just above 100, which you can see in the chart below.
The first temptation is to say, "Oh, the market's too hot, so I will wait on weakness." Yet, looking at the historical forward returns for the stock market when the 21-Day Oscillator moved above 100 (going back to 1978) suggests that while your odds of success might be lower in the near term, they get much better as you look out a year. (If your are a subscriber to HaysAdvisory.com, log in by clicking here to get the full study in today's report titled "The Fuse is Lit!".)
This is just one example of why we think the last four years of this bull market have only produced a bull market that is still in its infancy. The Fed has not even started to normalize monetary liquidity yet, and with today's news showing prices are still very tepid and economic growth is sub-par, the Fed may still continue to prime this pump a lot longer than expected.
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