As the Secular bear is mauling Canada, it would be a mistake to think that the S&P 500 is somehow immune or likely to escape the cyclical bear market already underway across the world. As shown below since 1996, years of reckless leverage and central bank interference have left a heinously over-valued S&P 500 staring down outrageous price risk. So far just 9% below its May 2015 cycle peak, the first significant downside test lies at least 25% lower in the 1500 area (first brown band) that marked the peak of the 2000 and 2007 cycles. As secular bears go, -34% would be an unusually mild mauling.
Indeed as shown above in the 2000-03 and 2007-09 cyclical bears, a decline towards the 2009 lows (green band) is also probable for the large cap US index this time. That would suggest an S&P 500 in the 800 area. And as shown in the lower panel (green line) above, each of these prior bear markets wrought 50%+ declines after the RSI (relative strength indicator) broke below 47. It did this again with last week’s close (46.72).
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