Following the sharp -20% decline in the stock market in December, we have experienced an equally dramatic rally back to the underside of the multi-year support trend line. Many of the technical indicators I watch have tipped back in to bullish mode. Trump and the Fed have done everything in their power to drive stock prices higher, but so far, new all time highs have proved elusive. I think the market has just about run out of gas now and if that is the case, and this bear market rally has ended, we should see lower prices in the months ahead.
I am open to Scenario 2 unfolding, but I think the higher probability outcome is Scenario 1 in the chart below - – a head and shoulders topping pattern that marks the end of the multi-year bull run.
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