How High Can The Stock Market Go?
If we take a look at a 15 year chart of the S&P we can see that it is in a slightly downward sloping expanding megaphone pattern. If the pattern continues we should expect to see the S&P hit the top end of the megaphone which would bring it to at least 1600. That doesn’t mean it will go straight up from here . Some gurus are expecting the bear market to continue with a re-test of the March, 2009 lows but I do not see that happening unless the world wide economic expansion completely falls apart or a major catastrophe hits.
I have drawn a line where the current bear market downtrend was broken. This coincides with a horizontal line drawn at the S&P 1150 area. This line clearly separates the upper half of the chart from the lower half. When 2 major trend lines intersect at a price point it gives that price more importance. Therefore S&P 1150 should see extremely strong price support. If that level is broken the S&P could drop to as low as 1050 or lower and still be trading above the bear market downtrend line. If the downtrend line is penetrated that would be an indication that the bear market has resumed and a re-test of the bottom of the channel should be anticipated.
The improving worldwide economic situation so far has not resulted in a meaningful improvement to the U.S. employment picture. It is not unusual for workers to have to re-train themselves after a recession as improving technology and world wide competition causes jobs in older industries to fade away. Therefore we should expect the stock market to continue its march upward. If the bear market in stocks does manage to resume and the S&P subsequently hits the bottom of the megaphone pattern, we would be looking at about S&P 600 and Dow 5500, not a pretty picture.
One money manager called the rally off the March, 2009 lows a sucker’s rally. The only suckers are the ones who didn’t participate in at least some part of a 70% market move. Obviously one should not mindlessly just buy and hold a stock forever as profits should be taken along the way. Another event that is being waited for is the 10% correction. I’m not sure why a market has to correct 10% or at all but I suspect that is another event that may not happen since so many people are expecting it.
The market move upward from the March, 2009 lows has been fast and strong and at this point shows no signs of slowing down. If the world economy performs better than anticipated, it would not be surprising to see the stock market continue its meteoric rise to the top of the channel.
