No doubt, a rising market creates bulls and removes skepticism. If the market continues to climb, you will probably want to join the crowd. I know this. That is why we are compiling a trading list of "hot stocks" if we get the anticipated selloff during the month of August.
I am not very good at putting my feet on the edge of a cliff, but I cannot ignore the recent trend. It is becoming painfully obvious that 2006 has all the makings of being a down year. In fact, corporate earnings will slow significantly as higher energy costs and interest rates begin to take their toll.
The 2000-2002 market drop of 50% (S&P) was eerily similar to the 1973-1974 bear market. The 1974-1976 bull market fueled a similar optimism that we are experiencing right now. However, the 1976-78 bear market sent prices down 28%.
Various market experts want you to believe that our current high energy prices and rising interest rates will not hurt the economy. If they are right, it will be the first time in history that this has happened.
My analysis is telling me that we will reach a market peak somewhere between 1250-1350 on the S&P 500. The timeframe is between now and January 2006. In 2006, the markets advance will come to a screeching halt. The market will probably decline in a similar magnitude as 1976-78, down 20+%. This decline will represent a major buying opportunity that will begin another major bull market. If you are prepared, this food fight will be lots of fun.
