Equity markets pulled back this week but I’m expecting the current pullback to be short-lived with further upside into year-end and early Q1. By February, however, weekly indicators tracking 1-2 quarter shifts are likely to be overbought after bottoming at the beginning of September with most cyclical stocks. The pending pullback into Q2 should prove to be a healthy pause within a bull market that likely continues higher through into year-end 2021.

Interestingly, despite that longer-term outlook, many investors are focused on the very short-term, asking for the likely path for the S&P into year-end. If you recall, in last week’s note (here) I outlined the technical reasons why a short-term pullback was likely pending. Yellow flags included the Russell 2000 Small-cap Index surging 30% from its September lows, while low put call ratios and elevated bullish sentiment indicators were potentially signaling excessive near-term optimism. Equities markets were increasingly choppy moving through the past week with declines on Monday and Wednesday, anemic trading on Thursday and further weakness into mid-day on Friday as I write this note. Daily momentum indicators, tracking 2-4 week swings, are negative, which understandably has short-term technical traders expecting further w...

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