STOCKS MAY BE OVERDUE FOR A 5% PULLBACK ... The ziz-zag lines in Chart 2 mark pullbacks of 5% or more in the S&P 500 since the bull market started in spring 2009. Pullbacks of at least 5% occurred in each of those years (using closing prices). Except for the past year. That's the period in the gray circle at the upper right of the chart. If you compare the length of that last upleg to prior years, you'll see that it's length seems unusual. And it is.
I haven't confirmed it, but I read somewhere that this may be only the third time since the 1960s that the SPX has gone more than a year without a 5% pullback.
The up arrow at the start of 2016 marked the end of a 15% correction that started the previous spring. The second arrow marks the end of a 5% pullback following the Brexit vote that June. It's been an uninterrupted rise since then. All of which suggests that the SPX is due for a 5% pullback. If one is going to occur, the seasonal bars in Chart 1 suggest the most likely period would be during the August/September period. BY JOHN MURPHY
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