We were pleasantly surprised last week when stocks staged a 1% rally. The advance/decline line was almost 2:1. That’s a pretty good showing compared with the week before.

Regarding the short-term, we don’t think the correction is necessarily over. But neither do we think a major bear market is beginning. We could see a return to the March 7 lows, or even a little lower. But a decline of more than 7-8% from the peak is unlikely. A 9-10% decline would be the absolute worst we could see, in our humble opinion.

As we have pointed out before, bear markets seldom begin right after the kind of Dow Theory Buy signal we had recently. (That was the signal in which a new high in Transports confirmed the new highs in all the other averages, including the Industrials.) Yes, corrections often occur after such a signal. We’re having one now. But the bull market will almost certainly resume before much ground is lost. Confirmed new highs tell us that the economy is on too good a footing to permit a bear market in the near future.

And speaking of the economy, let us share with you a little secret …

OUR MARVELOUS RECESSION METER

At TCI we use some very complex machinery for making economic predictions. At the moment, the overall readouts are pointing to a slowing U.S. economy.Read more...