Late in 2017 I was prepared for a significant market correction and not only did this not happen, but instead the market finished the year strongly. Rather than the S&P/ASX 200 Index falling back towards 5500 it actually pushed and held above 6000 for reasons I’m not sure are based on market fundamentals.  So what happens from here?  Will the market rally keep pushing the ASX 200 higher over the next few months or will a correction bring it below 6000 again. Of course there is no way to be sure what will happen, but let me lay out some thoughts on what might happen.

Many analysts have recently warned that the US markets are setting up for a potentially massive correction, 40~70% some warn.  Our own analysis has shown massive market cycles that correlate with an October market correction.  Our VIX cycle analysis indicates that we should be expecting a spike in the VIX right now (within the next 3~4 days).  What does all this mean in reality for the average investor?

Ten years ago the Australian stock market was at an all time high with the S&P/ASX 200 Index at around 6,500. Just a few months later however the  the global financial crisis played havoc with the markets and the ASX 200 slumped to around 3000. But even during those darkest days I did not imagine that a decade later the Australian stock market would still be below 6000.  Yes the mainstream finance media might excitedly churn out eye-catching headlines every time there is a minor rally or correction, but the sobering reality is that during most of the last 10 years the Australian stock market has done very little.

I implement these “seasonalityâ€� charts as they have been a great framework into all of my trading/investing technical analysis.  Seasonality charts are constructed from the past thirty years of historical data. I implement them as “contrarian indicatorsâ€�.  The “extreme bullishnessâ€� is perceived as bearish and the “extreme bearishnessâ€� is perceived as bullish!

Each year I outline how I think the Australian Stock Market might fare bearing in mind that my forecast, like all forecasts, is actually a calculated guesstimate – at best. None of us know with any certainty how the financial markets will ride out the year and it’s probably a safe assumption that anyone that implies that they do is either trying to sell you a book or website subscription. But a forecast can be a useful planning exercise even if it simply makes us think of the factors that might move the markets. So once again I will go out on a limb and add my forecast to the galaxy of other forecasts.

Our recent analysis bases on a previous report of the potential for a further run in the US markets based on a number of technical and fundamental factors leads to the question of “what could happen with Gold and Silver�.  A broad US market rally may put some pressure on the metals markets initially, but, in our opinion, the increase in volatility and uncertainty will likely prompt more potential for upward price action in precious metals.

The U.S. election result has thrown another Brexit event at the markets and once again the markets have done and are doing the opposite of what many experts predicted. I did not focus on the U.S, election in too much detail and expected any post election rally or sell-off to be short-lived. However just as the sky never fell when voters in the U.K. decided to leave the European Union it’s has remained in place after the surprising win by Donald Trump. The biggest surprise though is that the so called “Trump Rally” keeps on going and so far, the Australian stock market seems to be following the lead and since early November has staged a fairly strong rally also.

Although many commentators in the finance media have found reasons to write excitedly about the Australian stock market during the last two months I have been unable to do so. Yes some ASX listed shares have risen sharply in price and profits have been there for some investors, but overall it’s been a very dull and boring few months apart from a correction that I wrote about at the end of August.

The last couple of months have been eventful for the Australian stock market. First, for reasons unknown, it was was moved by the Brexit referendum result and then as the 2016 Australian Federal Election saga slowly unfolded the market really didn’t do much at all, even-though Malcolm Turnbull almost managed to lose all the seats Tony Abbott had won for the coalition parties in the previous election. Despite these events however the S&P/ASX has gained ground and has edged up to around the 5400-5600 range…again.

This “distortion� between “risk� and “return� has created a “bubble� effect in all global equity classes. I informed my subscribers to exit the SPX on November 25^th, 2014 and to enter cash. Their equity risk exposure was reduced to zero. Momentum oscillators are now extremely overbought and are very clearly trending bearish.  I wait for confirmation before entering any new long SDS and long VXX positions.

Without doubt it’s been a tough few years for Australian share market investors. At times there have been signs of hope and in early 2015 the S&P/ASX 200 and ASX All Ordinaries briefly edged near 6000. There was also a glimmer of hope that the market would bounce back strongly after the GFC when the market rallied towards 5000 after nearly crashing to 3000 in 2008. Those were not pleasant days to be holding long positions but at least something was happening. At the beginning of 201o the ASX All Ordinaries Index was around 4800 – today it’s at around 5200 – which means that in just over 6 years the market has risen a paltry 400 points.

Stock markets rebounded solidly from their lows of February 11th, 2016, making new multi-month highs, earlier last week. The SPX rescinded 0.7% by the end of last week. These market gains can be attributed to the very bullish decisions of the European Central Bank (ECB) and the FED Central Banks.  On March 10^th, 2016, the ECB surprised the financial world by announcing a much stronger than expected stimulus package. One week later, the FED announced that it would not raise its’ short-term interest rates. It was only three months earlier, back in December of 2015, that they suggested that they would raise rates four times in 2016. It is now my belief, that they will not raise short- term interest ‘materially’ in 2016.

It has been some years since the last review of the Shareswatch Australia Random Stocks Portfolio and so it will be interesting to see what impact the slump in commodities prices has had upon it.  The last review of the portfolio was back in November 2013 when the S&P/ASX 200 was around 5400.

Although much of the commentary in the mainstream finance media conveys the impression that the Australian stock market is in the midst of unprecedented correction, the reality is as usual somewhat different.  In fact, considering the rout in commodities prices it’s somewhat surprising that the ASX All Ordinaries and S&P/ASX 200 are still around the 5000 level. This suggests to me that the market is probably near a multi-year low and that despite all the pessimism, it’s unlikely to finish the year lower.

Since mid-2014, the US stock market has been showing signs of the underlying market weakening. During the last quarter of 2015, the stock market had its first major bout of distribution selling, which confirmed our analysis that the bull market is nearly over. If you have been following my articles for a while, then you may be tired of my warnings of the bear market, which is on the verge of starting. In fact, the TSX Toronto stock exchange, US Transportation index and the Russell 2000 small-cap index have all been in bull blown bear markets for six months already.

This year it looks like that at best, the Australian stock market will end at around the same level where it finished in 2014. This is certainly a surprise for those who were getting excited back when the ASX 200 was repeatedly testing 6000 during March – May. The major drags on the market have been China and commodities, both of which I have flagged as major risks for a few years.