Try breathing in – only in – for a full minute.
Can’t do it? Of course you can’t. Our bodies aren’t meant to. We know this intuitively; our lungs operate in a perpetual cycle of inhales and exhales.
The market is no different. What I’m showing in the chart below is the periods when the market goes steadily higher without a pullback. Think of it as the market only breathing in.
I can spot this type of market activity by looking at the Stochastics indicator. When the market is in ‘cycle mode,’ the indicator oscillates back and forth between 0 and 100. Breath in… Breath out…
But when the market is trending higher, Stochastics readings stay in the upper range (i.e. 70 to 100). Breath in… Breath in… Breath in…
I’ve identified four such periods in the last two years, including the one we’re in right now. The last three periods had common characteristics. They each lasted an average of 50 trading days, and were followed by a meaningful price decline… Breath out…
The Dow has marched higher for 44 days now. We’re watching for the exhale.
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