"During the Presidential election year of 1972 the US stock market consolidated for the first 10 months, broke decisively to the upside at around the time of the election in early November and surged to a peak during the first half of January-1973. It then embarked on a 21-month decline that resulted in the Dow Industrials Index losing about 45% of its value. The below chart tells the story.
In early September we began to discuss the possibility that today's S&P500 Index might be following a similar path to the one followed by the Dow during 1972-1974. At the time we first mentioned this possibility the S&P500 Index needed to breakout to the upside in November and to then surge to a January peak to maintain the similarity. Interestingly, an upside breakout subsequently occurred on schedule (at around the time of the election in early November) and the market has since continued along its upward path in line with the early-70s comparison. Of course, what needs to happen now in order for the similarity to persist is for the S&P500 to embark on a major decline at some point over the next couple of months. Such an outcome appears to be a reasonable prospect considering that we currently have extremely bullish sentiment combined with over-the-top valuations and a worsening monetary backdrop, although there's little to be gained by making any bearish bets until evidence of a peak starts to appear in the price action."
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