I think based on historical cycles that I study that we are likely to see a decent run up after an early year drop, followed by a strong decline in the late summer. This study is not based on any valuation of individual companies. This rally best guess will start somewhere between March first and May 1st. Who knows how accurate that is due to it being a guess projecting forward. We need a drop or sideways move into that time frame, or the model is off.
The market is currently over valued in comparison to the 30 yr bond, which has been a pretty good predictor historically of price swings. As I mentioned long ago in here, and was made fun of, the ten year cycle with years ending in 7 have had some very nasty late summer drops ( just look through a Dow chart in these years and you will see these declines ). I see no reason why that will not happen this year, however I do think it will be from new highs when it happens.
My two cents worth – As I stated before I am a timer so I need to have a plan. It is adjusted according to conditions at the time of the cycle due dates. I agree with Dave that the market is very overbought here. The other thing that is very troubling, is the excessive amount of bullishness in the advisor community. This typically leads to declines.
On CNBC the other day I heard 4 or 5 Dow year end guesstimates and the lowest one was 14,500! That is way too much bullishness for a major launch to start from. We need to shake the tree a bit first, scare out the weak hands, then a better buy spot will set up. Maybe that late summer drop I forecast, will tie into the recession that alot of people in here are expecting this year. In my business it is not important to try and forecast recessions, so I have no idea if we will get one. It would make sense though based on what I just laid out.
