Michael Gouvalaris | Dec 13, 2013 02:23AM ET
Taking a look at the technical structure of the major averages, most if not all look to be in pretty stable and solid up trends and returns across the board this year and the previous five years have been stellar. However in the interest of full disclosure I felt compelled to put together a quick post to highlight some potential technical headwinds going forward. Doesn't mean it will play out as such but it is always best to be prepared.
Over the past few years I have been pretty bullish over all. The second post above was created in June of 2012 and the S+P 500 is some 40% higher since. However as I have expressed in my weekly market summaries for awhile now, I remain cautious in regards to the downside potential in the near term. And I want to caution investors going forward.
The above chart is the long term trading range of 1966-1982 and if things continue to move in unison we may well be at the tail end of wave number 7 up. At that time what proceeded was a 28.5% drop in the S+P 500 from 1980-1982 (141.96 to 101.44) before finding support for the one of the biggest and best bull market runs of all time into the year 2000.
This would roughly match the 28.5% correction size experienced in 1980-1982 and may very setup for another major move to the upside over the next decade on more. Only time will tell on that.
Of course this doesn't mean that these patterns must continue forever. The only purpose of this post is to highlight some potential technical headwinds going forward. I believe I have made a case for the potential upside in the near term to be limited and the risk to reward at these current levels potentially not being ideal. Investors should be cautious but also cautiously optimistic in the long term in the hopes that things will continue to improve.
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