The Trump Rally In U.S. Stocks Is Over!

Since the intra-day low of 2,084.59 on November 3rd, 2016 the S&P 500 Index has rallied 8.39% to Friday's record closing high at 2,259.53. While U.S. stock futures are higher tonight (Sunday, December 11th), by tomorrow's NY close (Monday, December 12th) I believe the tide will have turned and a major stock market correction will be underway.

As can be seen on the daily, weekly, and monthly charts below, the S&P has now advanced to its 3-standard deviation upper Bollinger Band, where mean-reversion corrections are almost inevitable.

I see this so-called "Trump Rally" as a terminal advance that will ultimately be viewed as THE TOP in the current 93-month old bull market that began in March 2009.

All the usual variables that contribute to bear markets will soon be in force here as follows:

1. The Federal Reserve is raising interest rates and is now in tightening mode (at least for the short term - "Don't fight the Fed!").

2. The U.S. economy is probably already in recession, but official declines in GDP, as reported by the Commerce Department, won't probably be reported until the first quarter of 2017. Corporate earnings will deteriorate rapidly and P/E ratios will soon revert to more realistic values from current historical highs. Corporate buy-back programs will quickly disappear and central bank buying of stocks on a global basis will evaporate.

3. President-elect Trump and his potential Administration will raise domestic and international levels of uncertainty in the financial markets as his policies generate confusion and controversy at almost every level of Government.

4. The latest CIA report on Russian interference in U.S. elections has the potential to be a "Black Swan" of unprecedented proportions for investors as the validity and legitimacy of a Trump Presidency is called into question.

5. Crude Oil prices have more than doubled since their lows as posted in early 2016. This latest production agreement among OPEC and Non-OPEC countries, as reported today, may be a short term positive for energy-related companies, but higher energy prices are ultimately a huge negative for the global economies in general.

In the interest of full disclosure, I am short the S&P 500 Index using the double-short SDS ETF as my favored investment choice for this bearish action.

S&P 500 Index Daily Chart with 3-Standard Deviation Bollinger Bands

S&P 500 Index Weekly Chart with 3-Standard Deviation Bollinger Bands

S&P 500 Index Monthly Chart with 3-Standard Deviation Bollinger Bands

Damned If They Do; Damned If They Don't (Fed Rate Hike)

The U.S. Federal Reserve appears cornered in a "No Win" situation right now. In its FOMC meeting this coming week, the Fed will decide whether or not to raise interest rates. Several voting members have already voiced their hawkish views (translation: it's time to raise rates!), but there are also a few doves still on the Board who think the U.S. economy is just not strong enough for a rate hike here.

Fed Chair Janet Yellen appears ready to raise rates, but recent "data" tend to support waiting until at least the end of this year before pulling the trigger on a 1/4-point hike. And just maybe the Fed Chair has the November Presidential Election in her sub-conscious, and just maybe she's rooting for Hillary Clinton.

For most traders and investors, the prevailing view is that "no rate hike" is bullish for U.S. and global equity prices. While this group could be right, I think that if the Fed stands pat right here a message will be sent that the U.S. economy is weakening and that recession risks are heightened. Any scent of the next potential recession will send stocks lower.

And I think it's safe to say that most traders and investors believe that if the Fed raises interest rates this coming week, the U.S. equity prices will almost certainly retreat.

Damned of They do; Damned if They don't!

Unfortunately for U.S. equity investors, the script has already been written in stone if we look at the latest signals from my computer trading system. An official double sell signal has already been triggered in the weekly chart of the NY Composite Index, and a preliminary monthly chart sell signal is forming for the current month of September in the NY Composite Index. Official Weekly Chart sell signals have also been triggered in the Nasdaq Composite Index and the Russell 2000 Index. Please see all four charts below.

Nasdaq Composite Index Weekly Chart with Computer-generated Buy & Sell Signals

Russell 2000 Index Weekly Chart with Computer-generated Buy & Sell Signals

NY Composite Index Weekly Chart with Computer-generated Buy & Sell Signals

NY Composite Index Monthly Chart with Computer-generated Buy & Sell Signals