We traders, investors, and analysts have all been astonished about how long this bull market has lasted – well over eight years and counting. This long run has been accompanied by endless predictions and discussions around “when will the bull market end?” As we know from experience, predictions are a low probability bet. The market data will tell us all we need to know about direction and trend. So what is that data saying now?

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When will the bull market end?

The bull market can certainly rage on longer, but the odds are against it. Market patterns are cyclical, and while the timing of the cycles (up and down) is often different, we can certainly refer to previous changes in trends and investor behavior. You cannot argue with the crowd. Sentiment is difficult to change on a dime but once it changes, momentum takes over. It quickly becomes a snowball picking up steam as it rolls downhill and gets bigger and stronger.

Now, I’m not trying to say there is a monumental shift about to occur. However, you can plainly see the conditions for a continued bull run have changed, and those forces defied even the worst news (like last year’s Brexit, the US election and the many macro news events this year). If we look under the hood, there are some signs we need to pay attention to.

Some of the more useful technical indicators include the MACD, bullish percent, breadth, volume oscillators, summation index and new highs/new lows. They are all momentum indicators, and they are all currently flashing red. As I mentioned above, it takes a lot of effort to move from simple correction to outright bear market. Until recently, price action (the primary indicator) was not bearish, and that alone was enough to support a bullish posture.

The divergence between price and the other indicators is important. When price action broke hard on the two recent “Torture Thursdays”, we could put it near the bearish column (certainly for the Russell 2K). Keep in mind that pullbacks or corrections often occur when shorter term indicators line up bearishly. If the intermediate and longer term indicators are not bearish, the pullback will likely be shallow. If those indicators do change, we will have to change our trading approach and become more defensive. But we’re not there yet.

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