Pieces Of The US & Global Stock Market Puzzle Come Together

All through the summer we had a “top-test” view on the primary US stock index, the S&P 500. We were 100% right on that; SPX spent all summer grinding upward to that test.

That is where the would-be market genius aspect of the analysis ends because it appears that the favored outcome of that test – that it would fail into a correction – will be negated in favor of the alternative outcome, which we have also carried forward. That outcome is a continuation with a measured target of SPX 3000+. So the favored and alternate views have traded places. The alternate now being that the bullish state of things is one big, post-Labor Day bull trap.

Okay, so you’re right for a long period of time, you realize the moment that the favored plan is aborting (per a subscriber update on Tuesday) and you adjust. It’s simple, if you’re keeping the pulse of things. You are going to be wrong sometimes about the stock market. That is the stock market’s job; to try to make you wrong. It is in the bias-free adjustments that success lay. We had a bullish view all summer and now it appears to be extending instead of terminating.

As noted on Tuesday I covered my single largest position, which was a short position on the world, ex-US (short ACWX) because I did not want to absorb what I thought was an oncoming bounce within its downtrend. Okay, all well and good. It appears markets are shifting to the alternate and near-term bullish plan.

But what of the whole global picture, including the US? Well, I found this article by Tom McClellan interesting for a couple of reasons.

What Happened to the Eurodollar COT Model?

All along the span of our projected SPX top-test I’d been hearing from a couple of people that Tom was expecting a significant correction in US stocks over the summer. I have to assume that his Eurodollar COT model was a primary reason. Below is his chart.