The Big Picture

"History doesn't repeat itself, but it does rhyme." - Mark Twain

As we're nearing all-time highs in the Dow, those of us who still think that we're only in a rally within a narrow trading range have been very quiet lately. Perhaps too quiet.

Even in all of the reading I do daily, I have not read one single utterance from those who still think that we're still stuck in a long-term trading range. As usual, the herd tends to get very bullish at the upper end of the trading range and very bearish at the bottom end. This time is no different, as Mark Twain would agree.

There's nothing like a big bull market over the past three years to make you doubt your convictions and analysis. Yet, when you step away and look at the big picture, that sideways trading range concept still holds water. As we see from the historical comparison in the Dow below, having multi-year trading ranges after huge rallies is not unusual, either in stocks or the market itself. The last one lasted 20 years. So, when you think that the past 6 years has ended that time frame and that it is time to get back into stocks aggressively, you may want to temper your enthusiasm a bit.

Obviously in past sideways trading range markets, it paid to be bearish at the top and bullish at the bottom. I don't think this time is going to be any different. As we see from the last 20 year trading range, false breakouts and false breakdowns were common, so even if we push to new highs in the short-term, I'm fairly sure you can not trust it. Particularly when you examine the current status of the economy, inflation, interest rates, and very troubling signs ahead I think for the consumer and the housing market. Yes, these things haven't mattered in the past, but I think they will in due time. Most alarming to me personally is the amount of new found interest I'm seeing in the market and the massive inflows by the individual investor again. This group always tends to come in at the late stages of the cycle, never at the beginning.

I don't want to rain on anyone's party. Frankly, I truly hope I'm dead wrong about this sideways trading opinion. But, I'm still sticking to it and nothing recently has changed my opinion for good or for ill. As always, you need to make up your own mind and adjust your risk exposure accordingly.