If market sentiment suggests that prices will continue to go higher, what is this rally? The simple answer is that it’s the start of a new bull market. But the incompleteness of the economic picture suggests the rally could be part of something a lot more complex. It could be a mini bull market that separates two declining waves or bear markets. A mini bull market that doesn’t go to new highs but brings prices back to the previous high on the S&P 500 of 4,800. It would then form a double top.
So, which is it – the start of a new bull market or a double top before prices start down again? If you let sentiment be your guide, you don't have to know the answer.
You allow the current rally to move higher and don’t get worried until more people get bullish. But the degree of bullishness can’t be based on a feeling or an opinion, you need a metric like the master sentiment indicator to measure it.
While we said we don't have to know the answer we can't help voice our opinion of what it is. We think we're in the process of forming a double top and we've diagrammed it below. We believe it's the most probable outcome.
We think this pattern fits with the current economic situation. We'll follow the situation closely. We'll measure investor sentiment daily, especially if we get close to 4,800 on the S&P 500.
At that time the answer to the question will become much clearer.