Bull market but correction overdue

By Colin Twiggs
January 20th, 2014 1:00 am ET (5:00 pm AEDT)

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Research & Investment: 12 month performance

ASX200 Prime Momentum returned +32.88% for the 12 months ended 31st December, outperforming the ASX200 Accumulation Index by +12.58%. Comparable results for the S&P 500 are not yet available as the strategy is only in its third month.

Bull market but correction overdue

Both the S&P 500 and Nasdaq 100 have exceeded their targets. Absence of a significant correction for several months indicates extreme bullishness, but makes the advance more precarious as buyer/seller imbalances grow.

The S&P 500 is testing medium-term resistance at 1850. Breakout would confirm a target of 1900*. Respect is less likely, but would warn of a correction if followed by reversal below 1810. Rising 21-day Twiggs Money Flow suggests (short-term) buying pressure, but reversal below the rising trendline would warn of medium-term bearishness.

S&P 500

* Target calculation: 1850 + ( 1850 - 1800 ) = 1900

Declining CBOE Volatility Index (VIX) readings for the S&P 500 continue to indicate a bull market.

VIX Index

The Nasdaq 100 is similarly testing resistance at 3600. Twiggs Money Flow troughs high above the zero line indicate strong buying pressure. Absence of a significant correction makes the advance more precarious, but this imbalance can endure for several months.

Nasdaq 100

* Target calculation: 3600 + ( 3600 - 3500 ) = 3700

The greatest accomplishment is not in never falling, but in rising again after you fall.

~ Vince Lombardi