From a technical perspective could the market be following the path of past sentiment cycles? The below sentiment cycle chart was first published in 1991 by technical analyst Justin Mamis in a book titled, The Nature of Risk. In looking at the below chart, it appears the current market pattern is following the pattern outlined in Mamis' chart.
(click charts to enlarge)
The market's recent advance from the early March low appears to follow the sentiment cycle's "wall of worry" advance. The next phase would then be the investor's "aversion" portion of the cycle. Consolidating some of the gains achieved since the March low would be healthy.
Although the market has had a strong recovery off the March low, since the beginning of the year, the market has essentially traded sideways.
From a longer term perspective, the market has a long way to go to reach its earlier high.
(click to enlarge)
From an economic perspective, I could cite a number of factors that would support a bullish case for the market and I could cite an equal number of bearish factors. One statistic that sticks out like a sore thumb is the continued increase in the jobless data.
Initial claims have exceeded 600M for 22 straight weeks. Historically, the consumer has represented 70% of the U.S. economy and unless there is some job creation, this 70% stat is not going to hold. What then will stimulate economic growth?
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