Consolidation phase of bull market comming soon

To repeat what I said last week, the initial thrust of a new bull market trends to be relentless for about 1 year (give or take a couple of months) with pullbacks no greater than 10% from any peak. We are now in the window when the initial thrust ends and a multi-month consolidation begins before the next phase of the bull market commences. An Intermediate term top in the 1150-1200 range makes sense given that this is the starting point of when the market took the parabolic pounding in the fall of 2008.




You can see by the long term chart that it was literally a straight line down. I find it hilarious when people say the market is ridiculous at current levels when all we've done is rally back close to the point where we've undone this horrific, once in a generation crash. Did people forget how extreme that crash was? How every single technical indicator went to never been seen before, jaw dropping extremes that even the biggest bears couldn't imagine?

If we go by the new bull market playbook the rally should stop right anywhere between now and early March with 1200ish being the maximum high. At that point, the market should enter a sideways or downward tilting multi-month consolidation phase which I'm sure is going to get everyone thinking that the market is rolling over and the bear is about to resume. Fat chance in my opinion but I'm always keeping an open mind.

If you want to try and take advantage of the consolidation phase that is likely comming by shorting the market go ahead and be my guest...just remember that in early 2004..the topping phase took 3 months and who’s to say that we haven't seen the ultimate high of this initial thrust yet? I think we haven't.

Looking further ahead, according to Zacks, earnings for the SPX are estimated to be in the $74-76 range for 2010 (pretty much the consensus view) and $84-91 in 2011. Did you know that the peak annual earnings recorded in the history of the SPX were about $87 in 2006? That means in 2011 the SPX is poised to have record earnings! Now I know what you're thinking...who's to say Zacks is going to be right with their estimates? That's a good point. But I would say there's a greater chance for them to be too CONSERVATIVE than too optimistic! Why? Because analysts such as those at Zacks are notorious for being behind the curve. When the trend in earnings has turned the corner and is on the rise like now, they tend to underestimate its rate of growth, and when the trend in earnings turns to the downside they tend to underestimate it's rate of decline (2008 was a perfect example). If Zack's $84-91 estimate for 2011 is accurate (which again, will likely end up being too low) where do you think the market will be by then? Not sub 666 like the bears think that's for sure.