"The last time the S&P did not go below the 200 dma in a year was 1995. I know that you were just a nipper at that time but does David remember the conditions that were behind that advance (almost going up in a straight line in conjunction with the 50 dma) and does he think we have the same conditions today? Or are we going to see a big correction before year end?"

David Fuller's view Thank you for an interesting email.

I am flattered that you thought I might remember the conditions in 1995 but I pulled out my dusty FullerMoney hardcopy Archives, when the M in Fullermoney was capitalised and that title applied to a monthly letter. I turned to mid-year and looked at FM133, 23rd June 1995, and here are the opening three paragraphs, shown here in italics:

We can look forward to more financial surprises
'"Curiouser and curiouser!" cried Alice.' - Is the Dow Jones Industrial Average's levitation the financial surprise of the year? One could be forgiven for believing so considering the plethora of bearish forecasts for Wall Street over the last twelve months or more. Arguments ranged from bizarre wave calculations to the public's 'naiveté' in buying mutual funds and the DJIA's soberingly low yield. Not only were we told that the US market couldn't rise - some 800 DJIA points ago - it was supposed to crash!

No doubt Wall Street's stunning advance during the first six months of 1995 will become a textbook example for contrarian thinkers. However to analyse the influential US market today and in future, we need to ask how it was able to steamroll over all those bearish arguments with the majestic ease of Jonah Lomu in full flight?

Clearly many of the people who had sold earlier, or allowed cash levels to build, piled in once the leading US indices sustained breaks above their 1994 highs. Most importantly, stocks were given a bullish lead from bonds when long-term interest rates peaked in November and went into a steady decline. Crucially, the public never panicked when bond prices were weak throughout the first ten months of last year.

I think you have got your answers, at least for the first two questions. Too many people were out of the stock market and bearish. We had the same conditions last November.

Do I think we will see a big correction before yearend? I have given three possible reasons for volatility in today's lead item. However, if the Middle East becomes less of a concern so that oil prices are not rising, and if the next, imminent round of Republicans versus Democrats over expenditure and the debt ceiling is relatively mild, and if QE tapering does not commence before December, most stock markets could be higher by yearend.