David Fuller's view

The only certainty is that everyone has an opinion but none of us know for sure.  I am on record for repeating that I do not expect a real bear market on Wall Street next year because monetary policy, according to the Fed, will remain highly accommodative.  Statistically, a real bear market is certainly a decline of more than 20% in my opinion.  However, I do expect at least one correction of at least 10% for the S&P 500 in 2014.  Why?  Because the bull market will be getting ‘long in the tooth’; we have not seen a 10% correction for 562 days, and this year’s gain is already 27.5%. 

Wall Street is developing some bubbly characteristics.  For instance, look at the important Nasdaq Composite Index.  It shows a rivetingly consistent uptrend this year – note the staircase step sequence – which is gradually steepening.  Note that the steps are forming more quickly – four to five weeks for the last three – and CCMP is certainly overextended relative to its 200-day MA.  When this leading Index loses its uptrend consistency, supply will have caught up with demand and a reaction of at least 10% will not be far off. 

Look at Amazon, an amazing company for sure but it makes very little money.  It is clearly accelerating at a rate that is not sustainable beyond the short to at most medium term.  Meanwhile AMZN has an estimated p/e of 499, according to Bloomberg, and pays no dividend.  Look at Nike, an incredibly well managed and successful company.  However, it is very over extended and saw a weekly key reversal last week.  Nike sells at an estimated p/e of 25.8 and yields 1.24%. 

Here are a few more: 3D Systems – AAON – Arcadia Pharmaceuticals, already correcting with reaction of one-third – Aceto Corp – Activis – Acxiom – Adept Technology – Affiliated Managers – Alliance Data Systems – Alliant Techsystems – Ameriana Bancorp.  I think you get the point and I am only halfway through the first letter of the alphabet.