THE BOTTOM LINE
Large amounts of global capital searching for a home continue to push equity prices toward new all-time highs. Without broad, mature negative divergences appearing across multiple supply-and-demand indicators, investors should not be surprised to see renewed attempts at setting additional record highs.
ATTEMPTS TO ASSAULT NEW HGHS EXPECTED
Weeks ago, when a prominent market bear projected that the stock market was on the verge of collapsing into a major bear phase, we noted that even if such a process had begun, the market could still linger near new all-time highs. This behavior is typical of major tops, which are often slow, exhausting transitions rather than dramatic turning points. Paul Desmond, the late president of Lowry Research, famously compared this process to the change of seasons: leaves first shift color, then gradually fall—one here, one there—until suddenly the trees are bare.
By contrast, market bottoms driven by fear tend to form quickly and then reverse violently as investors rush to buy perceived bargains. Major tops don’t behave this way; instead, euphoria dissipates gradually, like air leaking from yesterday’s birthday balloon.
With TATY (above), SAMMY (below) , and STERLING (Below) all achieving new rally-leg highs, it is difficult to view the bear case for an imminent collapse as anything other than low probability in the short term. Meaningful corrections almost always emerge alongside negative divergences across multiple supply-and-demand indicators—conditions that are clearly not present right now.
Many long-suffering bears, including colleagues and friends within the profession, are correct in identifying massive historical extremes that typically accompany major tops. What remains absent, however, is a catalyst. Undoubtedly, such a catalyst is forming beneath the surface and will eventually become front-page news. But history suggests that markets can exceed past extremes by astonishing margins—and that topping processes can persist far longer than expected. For now, the decades-long parabolic rise in equity prices continues, with new all-time highs just a few points above Friday’s close, supported by strengthening seasonal trends.
