There’s a big debate going on right now in the financial markets. Was January 2018 the top of this bull market? I don’t think so. Several signs and indicators suggest that the S&P 500 will at least make a higher high vs its January 2018 high before this bull market can end.

Breadth did not make a bearish divergence leading up to the January 2018 high

Bull market tops are marked by long periods of bearish breadth divergences. In other words, breadth needs to be consistently deteriorating before the last rally of a bull market ends.

This was not the case from 2017 to January 2018. Breadth continued to move higher with the S&P 500, which means that there was no bearish breadth divergence.

Here’s the NYAD Cumulative Line, which adds the number of stocks that went up and subtracts the number of stocks that went down. As you can see, the NYAD Cumulative Line made new highs along with the S&P 500 in January 2018.

You can see that breadth always made a big bearish divergence before the 2007, 2000, 1973, and 1968 bear markets began.

This implies that the bull market is not over. The S&P will make another new high, but breadth should not make new highs (there must be a bearish divergence). When we see a bearish divergence, we can start to see the formings of a new bear market.

The economy continues to improve

“The stock market is not the economy” is true on a day to day basis but not on a long-term basis. The stock market and the economy move in the same direction over the long run.

The economy continues to improve today, showing no signs of slowing down.

You can see the unemployment rate is clearly trending lower.

Manufacturing PMI is improving and trending higher.

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