Resetting the Market Top Call

You may recall that starting mid September the posts on this blog focused on a market pullback of the more moderate type (3 to 5%) followed by a run to new recovery highs. This was articulated again during my October 2nd appearance on CNBC at precisely the time when the S&P 500 was 5% off its intra day high of 1080. What followed was the expected run to new highs. What did not follow, however, was the probability that concerns over a bifurcated earnings season (big stocks meet or exceed consensus forecasts while the Smids on down do not) would produce a non confirmation high as big and mega cap make new recovery highs while the Smids on down do not, thereby generating a non confirmation and the increased prospects for a more substantial (as in 15 to 20%) decline.

As the accompanying charts* show, both the US size indices as well as various global indices all confirmed the new recovery high. Therefore, when it comes to making the (inevitable) market top call (melt ups notwithstanding) we are back to square one – a pullback (this time perhaps more than 5%) followed by another up move to new recovery highs with a keen eye toward the non confirmation vital to a major market top.

Investment Strategy Implications

Fully synchronized markets producing confirmation moves means the probabilities for a major market top at this time are quite low. This is one of the major points brought out in my podcast interview with Phil Roth last week.

So, while the bulls are sipping the sweet returns of a most liquid(ity) kind, as was the case in mid September a pullback of a more moderate flavor is all the bears are likely to taste.

*click images to enlarge.