It’s frustrating for me to have untold legions of people criticize me for being bullish here—cautious, to be sure, but yes, generally bullish—but I continue to believe this is only a correction. Now, part of that comes with the territory of having a big account, and putting myself out there, and I accept that. But I don’t easily tolerate emotional people screeching at me, making the flawed assumption that I’m being bullish just because. I have reasons, and I’ve elaborated on many of them recently, but I thought I would bring some of the thoughts together to defend my position to some degree, so that folks know that I am—for all of my many failings—actually attempting to be rational here.

1. We know that markets, historically, can tolerate rate hikes well, often for quite some time before a bull market ends. And we haven’t actually even seen hikes yet.
2. We have no 10Y/2Y yield curve inversion here (though it’s moving in that direction), and even if we did, it would mean little to us here today as markets tend to top (on average) six months after such an inversion.
3. Much of this recent selling has been news-related. Historically, news-related selloffs are almost always reversed.
4. Historically, wars are, as awful as it is, often not as bearish for equities as we might want to presume. And it’s not even clear yet to what extent we might classify this geopolitical event as “a war,” nor to what extent the U.S. will be involved.
5. Bear markets are most often associated with recessions. And presently, the economy is still growing, though its rate of change of growth is slowing. Now of course many, many individual names have had outright bear markets, but as far as whole indices, it’s not something we typically see without also seeing recessions.
6. Bear markets often start on peak euphoria, and frankly, most of the sentiment data seems to point to the opposite: that since the COVID crash low in particular, sentiment has been especially bearish.

I have more, but you get the idea here. I’m not simply shooting from the hip. I am acknowledging that none of this stuff points to a market top. And thus, so far as I can conclude in advance, this appears to be merely a correction. And now that raises a new question: how big and how long? Extremely hard for me to say.

I know that the vast majority of corrections in stock market history take on the appearance of a 3-swing structure of some kind.

And so, even at the January 24th low, I could see a 3-swing move on the S&P 500, like this:

Read more “Here’s My Thinking Here”