Since 2016 the SPX climbed about 60% into the February 2018 top. This is not very much compared to other moves in history, but it was fast and without many retracements. Usually, such a move is followed by larger than usual corrections. In our case, the market should have fallen some 20%. Why 20% and not just the plain 7-10% benign correction? Because such a rise has created a bull herd that needs to dissolve before the market can advance further. Any further rise needs fresh buyers and the ones that participated in the current rise are already committed. They will only be fresh buyers if they are shaken out in the first place. And they will only be shaken out by a larger than usual correction.
It is by this kind of roller coaster that the manic-depressive business partner known by the name of Mr. Market makes it possible that he is the winner most of the time in any venture with traders.
So, this time, will it be - 20%, or just - 10%?
I think it should be 20% given the high commitment into stocks. Just look back at what the market has done previously after this indicator has reached 0.4.
percent of assets held in euity. for more info go to: http://www.philosophicaleconomics.com/2013/12/the-single-greatest-predictor-of-future-stock-market-returns/
But, given the steep drop we got in February and the attention it received, the market may have been able to shake out many bulls just by the 12% correction we got until now. This is very probable and if the market moves above 2700 it is the most probable scenario.
