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The next leg higher in the S&P 500

Since ending a strong run higher at the end of February it has been a tough 4 and a half months for the S&P 500. Two months of slow drawn out movement lower to start. It did not amount to much. Not even a 4% pullback. And then another month to get back to even. It looked like it would break higher then but could only manage a less than 2% gain before topping in June and embarking on another 6 week pullback. The full range covered 12 points in the SPY ETF, or about 5% for the period, to end up less than 2% above the February 28 close on Wednesday. That works out to less that 5% annual return. Not horrible, but not great either. But the future looks bright.

The chart below explains why. The pullback that began at the beginning of June moved lower in a falling channel. Last week it touched the...