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If our assumption regarding the secular peak is correct, then the current bull market, based on previous counter-secular rallies, is extremely long in the tooth. Moreover, since a four-year cycle low is due in 2006, it’s probable the market will now play catch-up on the downside. The evidence, whether it comes from monetary aspects, financial market sequences, or intermarket analysis, is strongly bearish. If we use valuation measures, such as Shiller’s Price Earnings Ratio (26 on 12/05), or even the paltry 1.85% yield on the S&P as a sentiment indicator, long-term optimism is still very much in vogue, continuing to point to the fact that the market is vulnerable.

Talking of optimism, look at the recent Barron’s cover story that developed just one week prior to the top. I must add that Barron’s doesn’t have a reputation as a contrary indicator like, Time, Newsweek, The Economist, or Business Week, but the consensus optimism of money managers is too significant to be ignored.

One thing that has not yet happened is a break by the S&P below its 12-month MA, a benchmark that often reliably confirms major trend reversals. As I mentioned earlier, the average is expected to be around 1255 at the end of June. Normally, I like to see this average breeched. Not that it has a perfect record, but negative crossovers usually offer reliable signals that the bear has returned. With so many other indicators pointing south though, it will be surprising if the market does follow suit for the remainder of 2006.