Beware the ideal pullback

There's a decent chance that the bears will be thrown a bone this coming week for reasons I discussed in my previous post. SPX 1000-1010 looks like the first logical target. If breached, 960-975 would likely be the secondary target that should hold. A close below 940 would put this bull run in serious jeopardy because that would represent about a 10% pullback from the peak which would be uncharacteristic of a true bull market run during its initial thrust.

I mentioned the following a few times before - in the first phase of a true bull market you don't get the "ideal pullbacks" that underinvested longs want i.e. the 10-15% pullbacks. A true bull market doesn't allow comfortable, convenient entry points. Let me ask you this...when you look back at any of your losing trades how many times did you say "wow, the market just gave me a gift to buy(short) here, this is a no brainer". Lesson to be learned: the market rarely gives you gifts.

All throughout the spring and summer pundits called for the 10-15% pullbacks which never materialized. I warned that such a pullback would be a danger sign. Get this...throughout the bull market of 2003-2007 guess how many 10% pullbacks occurred....0! That's right 0! The biggest pullback was about 8%. Now, mind you that was extremely unusual....I don't think it's ever happened during any other cyclical bull market in the past. But let's examine the behavior of some prior cyclical bull markets and how long it took before the first 10%+ pullback:

1970-1973 bull market: 1.5 years

1974-1980 bull market: 9 months

1982-1990 bull market: 2 years

1991-2000 bull market (technically the market bottomed in 1990 but the initial bull market thrust occurred in early 1991) : 3 years

Looking back even further all the way to 1930s yield similar results except for what happened off of the 1932 bottom whereby a sharp correction happened within about 3 months but that's only after the market gained 100% first! Therefore, you can conservatively assume on average it takes about 1.5 years to see the first meaningful correction (10% +) after the initial thrust of a new bull market.
The typical corrections you see during the first 18 months of a new bull market are 2.5-5% from any peak. That's pretty much what we've seen thus far since the March bottom. We did see about an 8% pullback from the June peak mind you.

But let's be careful not to be dogmatic about this. There's no rule set in stone that says a true bull market run can't have a 10%+ correction so soon. Never think in absolutes when it comes to the market because the market can and will do the unexpected to ensure the motto of this blog is fofilled. But history has made it quite clear that the odds heavily support my thesis.