Of course it is dangerous to predict. But here is my thinking. First I don't see that we are anywhere close to recession despite all the news that suggests uncertainty -- speaking here of Trumps trouble, Brexit, and China's economy.-- we are still looking at very heavy deficit spending coming up, which is stimulating, and we are at full employment. And we just got there a few months ago. Yes the news for GE is not good, but we have 4th quarter earnings coming up and I fully expect them to be strong. There has been some indication of yield curve inversion which often precedes a recession, however there are lots of examples of inversions that were not followed by a recession (people forget about that). Furthermore, recessions preceded by yield inversion came months to many months after inversion. I don't see any signs at all of a looming recession! Here is what I see. Slow planned phasing in of increases in the Fed funds rate. This of course is the wholesale price of money, and other rates are adjusted off of this. When the Funds rate goes up it typically increases demand for dollars in comparison with other currencies. Said another way, this causes some strengthening in the value of the dollar. And when the dollar goes up in purchasing power the dollar denominated equity markets go down , all other things being equal. Add that factor to the over heated market and you have ingredients for a correction. Add in the S&P's double top (use the monthly bars please) and you will note that we came out of the S&P channel by about 5%, and the moves up were parabolic. A typical small correction is 5%, a typical correction is 10%, add in that 5% thrust above the channel and you get a 15% correction off the highs as being due. At 2500 we have almost exactly at 15%! What concerns me here is that a 15% correction wipes out a years gains for many mutual fund and long term investors. Some of them, those that pay any attention, are likely to panic if the market should move a little lower, and that could create a further move down to the bottom of the S&P channel for a 20% correction. I don't think that will happen however because I think buyers will come in against that. . What I will be looking for tonight and tomorrow is this. I expect, on low volume of course, that the /ES will move up substantially overnight. Then I expect some more selling at the open to take us down toward 2500. Then I will be very interested in tomorrow's close. If I see very strong buying the last hour on high volume. I will conclude that this correction is over and that it is time to buy. but if we close still lower, or if buying at the close, even if the price move is strong, is on uninspiring volume I will just have to reserve judgement and wait and see what the remainder of the week brings. That is my thinking. I am happy to pass it on for what it is worth, and you know what they say about opinions. I just don't see any reason for a weakening economy going into the first quarter of 2019. But I do see perfectly good reasons for the strong correction in the equities market we are seeing right now, driven by a strengthening dollar and just the simple observation that we had blown out the top of the S&P channel for no apparent reason other than Greenspan's irrational exuberance. All of the foregoing is a result of my view that the inertia of the U.S. ship of state is tremendous and that the government more or less runs itself despite all the chaos in the White House.
Excellent point. Thank you very much for sharing your view. Here is the monthly chart as you requested..
You can see the double top and the more or less parabolic rise into both tops. If you go back to the "devils bottom" in March 2009 (666) and draw channel lines from there you will see easily that the two tops broke above the channel lines (draw the channel but do not include the tops in it.)
This is the price action during the extended session until now. Not too much strength to the upside. Price level 2529 is a strong area of support. Let´s see what happens later during the day.