My kids used to ask “are we there yet?” When we were travelling somewhere. The same question can be asked about this aging US stock market bull run. It is very long in the tooth and here are a few reasons why we should expect at least a 10-20% correction in the next few months:
1. The bull market is 4 years old, this is now as long or longer than the average bull market.
2. Late stage bull markets often have multiple higher highs without any meaningful correction, and this means they are starting to go parabolic.
3. Sentiment surveys are now at their highest since April 2011 and newsletter sentiment is now at its highest since the end of the 2008 bull market. These surveys are basically a measure of greed, and when everyone is greedy there is no one left on the other side of the market. Momentum is the only driver left.
4. Fed stimulus will not be cut back any time soon and the market now know this. That hot money is going into stocks
5. The confluence of daily (4-6 weeks), intermediate (20-24) weeks and the yearly (12-14 months) cycles is upon us.
We could be only days away from the top that ushers in a significant correction, enough to scare the Fed into abandoning its “taper” rubbish.