All the long term charts of major indices as well as most of the sectors suggest that we are within the few percent of a longterm swing high that will likely not be seen in the next few years at least.
There are two methods to spot tops.
1- A certain SECTORAL ROTATION that is usually seen near an cyclical bull or bear move.
2- Analyzing price structure of the LAGGING SECTORS. Leadership always show tendency to move in the future direction of the market while the laggards don't show signs. The topping process continues until these lagging sectors meet their long term targets. Once the last car of the train is in the tunnel, the downtrend begins.
So far, we have seen sectoral rotation, from small caps to large caps, from financials, real-estate, brokers... to industrials, defensives.
So far, we have seen price targets on the leadership sectors met. BUT there are lagging sectors that are yet to meet their upside targets.
It is likely that perhaps until these sectors meet their long term targets, we may be stuck in a range on SPX.
Following is one of the sectors that is yet to meet my long term projection. $OSX index is purely composed of Oil and Gas drillers unlike $XOI which includes refineries and retailers. $OSX has a higher correlation with underlying commodities because earnings in this sector is more of a function of demand/supply.
Commodities and related stocks are always last to move in any cyclical bear or bull market. Remember when Crude Oil was making new all time highs near $150 in the summer of 2008, similarly OSX was making new all time highs at the same time, but SPX was already down about 300 points off the top of Oct 2007. For about 9 months, Crude and OSX made new all time highs while SPX was in bear market.
I do not expect such a big and long divergence now because the current cyclical bull is a large degree correction within the bear that began in 2007. However there may be a similar situation on a smaller scale.
In technical terms, here is what I mean: While OSX may rally to 220-225, SPX may stay range bound with a downward tendency as financials and some other leadership sectors are already in a downtrend if lower highs and lower lows are any indication.
