Near Future Bias

I presented the chart below yesterday:

This time I also drew a bigger red circle to highlight the three times in recent history that the series reached about the same level as it did lately. Here is what the stock market did in each of the cases:

The smallest correction that followed was the one in September 2009, of about 5.5%.

In other cases in the past the story is the same. There is sometimes a longer period of maximum 2 months before a bigger correction starts, but that also depends on the context the stock market finds itself in. Since until now the SPX has risen about 20% it is not hazardous to expect an intermediate term correction soon.

However, I think the market will drift upwards to around 1270 before this bigger correction. Weakness should become apparent on the way up. In fact, some breadth indicators are already diverging from the market.