Market Direction and Stock Trends

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Weekend Analysis by Amateur-Investor
By: Amateur-Investor | August 8, 2020

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The S&P 500 is only 43 points away from its all time high.

As I have pointed out in the past, the S&P, in "Real Dollars", has traded in a long term upward channel. It has been rare for it to trade outside this upward channel (blue and red lines) throughout its history. In fact, outside of the late 1990's, the only other time it traded above the red line was way back in the 1830's (point A). Meanwhile the S&P, in Real Dollars, has never traded 200% above its long term mean (green line). However, if the S&P reaches the 3400 level, it will be 200% above its long term mean, as denoted by the brown line. For those, who say the market isn't extremely overvalued, from a historical perspective, are clueless. The Federal Reserve and its insane policies have created the largest Bubble in US history.

Once this Federal Reserve induced Bubble pops, I expect we will see the S&P 500 undergo a significant correction. At a minimum, a retest of its long term mean (green line), near the 1200 level (point B), will likely occur.

Finally, investors remain very complacent, as the 5 Day MA of the Put to Call Ratio is back below the 0.70 level. Each time the 5 Day MA of the Put to Call Ratio has dropped below the 0.70 level (points C), corrections have followed. These previous corrections have ranged from 6% up to 22%.

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