With the first half of 2014 winding down let’s have a look ahead to the second half and beyond. For now the Fed is still easy and the European Central Bank just stepped up its efforts by taking its overnight interest rate negative in an effort to stimulate lending and perhaps even growth. The tape is still moving higher with strong uptrends present on the charts of DJIA, S&P 500, NASDAQ and Russell 2000. But, in the short-term indicators have reached overbought levels [http://blog.stocktradersalmanac.com/post/Brisk-Gains-Send-Indicators-into-Overbought-Territory-SPY-DIA-QQQ] which need to be overcome by either a mild pullback or a brief period of consolidation before further gains can be made.
However, chinks are beginning to appear in the armor. First quarter GDP was revised lower to an annualized 1% decline, the World Bank just reduced its global growth outlook, weekly initial jobless claims continue to linger in the vicinity of 300,000, monthly job creation is just sufficient to keep the unemployment rate from rising and the housing market has also softened recently [http://blog.stocktradersalmanac.com/post/Housing-Market-Is-This-As-Good-As-It-Gets-]. New and existing home sales have slowed and the NAHB Housing Market Index has slipped below 50, the level considered healthy. Market internals are weakening as each new all-time high is reached with a fewer number of stocks making new 52-week highs than the previous. Trader and investor sentiment is quite high with only a limited number of bears and a far greater number of bulls and VIX, the so-called fear index, sunk to a new 52-week low last week.
Surging crude oil due to escalating violence in Iraq and a dysfunctional federal government are no help either. The next election process promises to be nasty with a strong possibility for continued upsets like this past Tuesday when Representative Eric Cantor was defeated by Dave Brat in a Republican primary, by a substantial margin. Markets do not respond well to uncertainty.
With the worst two quarters of 4-year cycle solid so far, we expect mild further gains through June and into early July. Even though we issued our Dow and S&P Best Six Months Seasonal MACD Sell Signal on April 7, at this writing we are still long some positions in addition to some bond positions and a little downside protection. After a 3-5% rally into July that takes the market up to about Dow 17500, S&P 2025 and NASDAQ 4500, look for major averages to fall 10-15% with a low in the August-October period to the vicinity of Dow 15000, S&P 1750 and NASDAQ 3800.
Then the rally in the best three quarters of the 4-year cycle (midterm Q4 & pre-election Q1-2) should ensue. But we expect the usual 50% move from the midterm low to the pre-election year high to be below average in the 20-30% range as QE tapering winds down, Fed rates hikes loom large and the economy stalls while Republicans and Democrats begin the next battle for the White House to a high most likely in the first half of 2015 around Dow 19000, S&P 2250 and NASDAQ 5000, slightly higher or lower than NASDAQ’s all-time high.
![[50% Moves Table from STA]](http://blog.stocktradersalmanac.com/media/image/AIN_0714_20140612_50_per_Move.jpg)
Then look for a move sideways to slightly higher throughout 2015 with an ultimate high near yearend 2015. Then the next bear market is likely to begin in earnest, taking the market 30-40% lower into 2017-2018 into the range of Dow 11500-13500, S&P 1350-1575 and NASDAQ 3000-3500.
Our Next Super Boom forecast is still entirely in play. Though we have raised the floor on our initial forecast, the 500+% move to Dow 38820 by 2025 is still on target. We have elevated the low-end of the range to account for this new easy money world. We still expect some tough sledding over the next few years in the market.
