To Peak, or Not to Peak…?
We’ve been in the final bubble rally since the bottom in early 2016.
It’s in a channel – as is typical – and is about as clear as it can be in chart patterns during such a confusing time, thanks to an over-stimulated economy.
The run up into January of 2018 looked like the perfect blow-off top. It resembled a classic over-throw pattern over the top trend line, then took a sharp break down into February.
The market briefly faked a move just below the bottom trend line and threatened to breakdown more sharply…
Then reversed back up again.
Now we sit at new – but only slightly higher – highs on the broad S&P 500 stock index near 2,900…
Where do we go from here?
There are two likely scenarios.
The first possible scenario is that we hit new, more modest highs near term by early November, testing the top end of this channel again, and finally topping out. It would take a substantial break below the bottom trend line to confirm this scenario, and that should happen by early 2019, if not sooner.
While the second scenario suggestions that the market remains largely within this channel with more modest corrections ahead and we continue to move forward until our next and final major cycle kicks in around late 2019.
That would be a double 45-year, or 90-year Innovation Cycle that marked the peak of the Dow in September 1929. The two greatest resets in modern history occurred 90 years apart bottoming in 1843 and 1932, respectively.
An intensifying trade war with China – along with escalating legal and political issues for Trump – could tip the balance towards the first scenario.
Signs of a resolution for either of these issues would shift favor towards the second scenario. That would then make this the longest final bubble channel in history.
Like I said in my video interview on Friday, we’re now in unprecedented bubble territory.
This longer-term bull market from late 1974 without a major 50%-plus correction is now 44 years old versus 26.5 years for the last one, which lasted from 1942 through 1968. It’s total bubble phase has now lasted 7.0 to 9.5 years by two definitions compared to 5.4 as the longest before that happened between late 1994 and early 2000…
And this short-term bull market without a 20% correction has now surpassed the longest ever from October 1990 to March 2000 at 3,534 days!
Make no mistake about it: This is the greatest, longest, and most pervasive bubble in all of modern history.
It will burst – and badly – after being stretched artificially this far. It’s been $16 trillion and 10 years of unprecedented QE, along with $1.5 trillion-plus in unnecessary tax cuts with more promised.
Our proven demographic cycles peaked in late 2007 – right on time.
But QE and stimulus have offset those downward impacts and allowed our 45- and 90-year cycles to trump here.
That suggests the peak should come by late 2019, and would more favor the second scenario at this point, unless we see much more political drama ahead. And that is clearly possible…
Trump’s legal challenges are tracking closely with Nixon’s Watergate on a very clear 45-year cycle, which could come to a head by late 2019, well before the election.
I’ll be touching much more about these two scenarios and this very powerful 90-year cycle in the September issue of Boom & Bust, the next issue of Leading Edge, and, of course, at the Irrational Economic Summit in Austin, Texas this October.