This Is The Last Year Of The Bull Market In Stocks

Many traders and investors have been unnerved by the stock market’s recent price action. This is understandable, with the S&P 500’s futures going up and down 1-2% every single day on the intraday.

Such high volatility is typical of the final 8-12 months before the bull market tops.

Here’s the October 2007 top.

Here’s the March-September 2000 top.

The U.S. stock market’s current correction particularly reminds me of the July – August 2007 correction. It was a rather large “small correction” of 10-12%. It was also very short (i.e. approximately 1 month), with LOTS OF VOLATILITY.

But sure enough, the first sign of high volatility was not the end of the bull market.

Here’s the S&P 500 right now.

Here’s what you should do during periods of high volatility.

DO NOT stare at the price every single hour. It will drive you crazy. Up 10 points, then down 20 points, then up 15 points, then down 30 points, then up 35 points. Do not let the market’s recent direction drive your thinking. Independent thinking is critical.

Focus on medium term risk:reward. Can the market fall more in the short term? It certainly can. Anything is a possibility because there is no such thing as 100% certainty in the markets. But what matters is probability and risk:reward. E.g. if the market has a short term max downside risk of e.g. 5%, and an upwards target of 10%, that is a 1:2 risk reward ratio.

Here are more signs that the U.S. stock market’s medium term outlook is bullish (ontop of the other recent signs)

*Let’s analyze the stock market’s price action by quantifying technical analysis. For the sake of reference, here’s the random probability of the U.S. stock market going up on any given day, week, or month.