This shows the consistent channel the SPX has demonstrably been following since the Great Recession of 2009. And it shows that since Dec 2020, it has strongly overshot the channel. It seems rational, therefore, to assume it needs to correct back into this channel. My red stars are not exact predictions, they are intended to point out possible correction levels in the near future.
This is actually a pretty optimistic forecast because it's possible that much of the post-2009 rise has itself been excessive and could experience a profound correction at some point. However, surely the Covid crater was a good measure of how low the equity market can go, even under extraordinary strain. Covid provided a major stress test for equities, and the market held up with a super-bull rebound. This would seem to suggest that confidence in the soundness of this long-term channel is warranted. However, it stands to reason, based on that confidence, that we should see some correction or consolidation until the SPX is back in its long-term channel.
This is actually a pretty optimistic forecast because it's possible that much of the post-2009 rise has itself been excessive and could experience a profound correction at some point. However, surely the Covid crater was a good measure of how low the equity market can go, even under extraordinary strain. Covid provided a major stress test for equities, and the market held up with a super-bull rebound. This would seem to suggest that confidence in the soundness of this long-term channel is warranted. However, it stands to reason, based on that confidence, that we should see some correction or consolidation until the SPX is back in its long-term channel.
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This idea is, I believe, better than the one above...
The reason the SPX is surging out of its long-term channel is because the Fed is printing more money, so people are using those extra dollars to buy equities. However, as a fraction of the total money supply (M2), the amount of dollars they're using is actually within the expected range of the SPX's long-term trend such that, by this measure (ie, by SPX/M2), the SPX still has good upside within its long-term channel!
