Time To Start Getting REALLY Bullish? | Tom McClellan
McClellan argues that election certainty, deficit spending, and current liquidity conditions can support markets even as fiscal risks build. He sees seasonal weakness and several market warnings, including high margin debt, high-yield divergence, and a possible shift from quantitative easing to tightening. His forecasts include a potential S&P 500 and Dow bottom in late September or early October, higher rates and oil prices through 2028, and an approximate seven-year cycle pointing to a major topping window around 2028. Separately, New Harbor has become increasingly defensive but sees a conditional opportunity in high-quality U.S. bonds if stocks fall sharply and yields decline toward roughly 3% to 3.5%.
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McClellan argues that markets respond more favorably to election certainty than to either party's victory, helping explain why buying can begin before the vote once the outcome appears known. He also says the presidential-cycle pattern generally shows continued strength, although current weakness appears seasonally normal rather than evidence of broader deterioration.
McClellan links relatively low taxation and deficit spending to near-term support for consumer spending, factory construction, liquidity, and stock prices. He contrasts that support with the long-term fiscal risk posed by persistent deficits and approximately $40 trillion of debt.
Treasury purchases currently more than offset mortgage-backed-securities sales, but McClellan warns that a shift to quantitative tightening could drain banking-system liquidity and weaken markets. He also views the end of QE or a move to QT as bearish for bonds, based on prior QE periods that coincided with falling bond prices.
McClellan says a hawkish Federal Reserve could intensify pressure on both liquidity and borrowing costs: the Fed raised rates 25 basis points in a unanimous 12–0 decision, while December 2026 FedWatch pricing assigned an 88% probability to further hikes and zero probability to cuts. He identifies 30-year Treasury yields near 6% and 10-year yields around 5.5% as particularly painful for the mortgage market.
The post-Fed market reaction showed an initial S&P 500 and long-term Treasury rally reversing during the press conference, while precious metals and commodities sold off sharply. This occurred alongside rising 10-year Treasury yields and crude oil prices, with McClellan interpreting commercial traders' reluctance to lock in oil above $100 per barrel as potential confirmation of further oil upside.
McClellan views the strong NYSE advance-decline line without price divergence as bullish, but notes that the typical worst drawdown after a three-year high is about 10% over the next three months. He expects the S&P 500 and Dow to complete a bottoming process in late September or early October, supported by a high put-call ratio, elevated VIX, and improving breadth momentum.
GEO-POLITICS
“That's exactly right. It the actual outcome of the election matters way far less than the certainty of knowing that we have an out an outcome. People don't care…”—
ECONOMY
“I would say that we are not taxing Americans to the hilt and we're leaving more money in the economy as opposed to in the government's coffers…”—
“They're selling off some of the mortgage back securities now, but they're b they're more than making up for that by buying treasuries…”—
“I first of all, I don't dispute those numbers. Those sound reasonable to get there from here…”—
MARKETS
“it really we've only got a handful since the 30s when we changed the 20th amendment and changed the political calendar…”—
“One of the things that we have going on right now, we have the advanced decline line has been fairly strong…”—
“I keep a daily advanced decline line for those data as well and they are very useful because these corporate high yield bonds they trade much more like stocks than…”—
FORECASTS
“So, we're in this bottoming multiple bottom formation structure right here…”—
“It's about seven years…”—
“How this comes into play for me is in a predictive way is that gold prices give us about a 20-month leading indication for what interest rates are going to…”—
The character of this market vs prior cycles
McClellan describes a market that is unusually strong for the first two years of a presidential term, supported by lower taxation, deficit spending, and liquidity remaining in the economy.
The presidential cycle and the “Rapunzel” chart
His Rapunzel chart averages four-year presidential cycles and shows the market generally moving sideways early in a term before rising sharply in years three and four.
The pre-midterm bottoming window
McClellan expects the current S&P 500 bottoming process to conclude in late September or early October, before the midterm elections, followed by a stronger advance.
Why the election result matters less than certainty
He argues that investors care much more about election certainty than whether Democrats or Republicans ultimately win, because a known outcome removes uncertainty.
Does today’s strength steal from year three?
Current strength does not necessarily reduce next year’s gains because the presidential-cycle sample is limited and strength generally persists when no major weakness appears.
The decennial pattern and the year-seven effect
The decennial Dow pattern also points to an early-October bottom and a bullish year-seven effect beginning around October, though McClellan is waiting for confirmation before turning bullish.
Why “year seven” is not just astrology
McClellan says the year-seven effect is not astrology because repeated historical data show reliable similarities, even though the mechanism remains unclear.
Advance-decline line and the 10% drawdown study
A strong NYSE advance-decline line without divergence historically limits subsequent drawdowns to roughly 10%, except during shocks such as COVID or abrupt QE withdrawals.
High-yield bond breadth: the main caution
The principal warning is a persistent bearish divergence in high-yield bond breadth, although a deeply negative oscillator suggests that weakness may be nearing exhaustion.
Record margin debt
Record margin debt is concerning, but its seven-year rhythm suggests the next major peak may not arrive until around 2028 rather than immediately.
The seven-year cycle points toward 2028
FINRA and Federal Reserve data both show an approximate seven-year cycle in margin debt and market tops, pointing toward a potentially important 2028 window.
QE5 and the quieter balance-sheet slope under Warsh
McClellan sees the seven-year pattern as a behavioral cycle in which investor enthusiasm and discouragement recur over roughly seven-year intervals.
Why QE has historically been bearish for bonds
He believes the Federal Reserve is quietly slowing quantitative easing under Warsh and could eventually move toward tightening, creating a risk to the bullish outlook.
Oil and Treasury yields moving together
Historical episodes in which the Fed conducted QE were generally bearish for bond prices, so ending QE or beginning QT would not automatically make McClellan bullish on bonds.
Gold’s 20-month lead on interest rates
Crude oil and Treasury yields are rising together, with yields already exceeding their prior peak while oil remains below its earlier high.
Gold’s 20-month lead on crude oil
Gold has historically led long-term interest rates by about 20 to 20.5 months, implying a potentially steep rise in Treasury yields through the coming year.
What oil commercials are signaling in the COT data
McClellan expects oil prices to follow gold’s earlier path with roughly a 19.8-month lag, suggesting higher crude prices for several years despite geopolitical distortions.
How the McClellan Oscillator was built in 1969
Commercial traders in crude futures are less willing than before to lock in current prices, which McClellan interprets as evidence that oil producers anticipate still higher prices.
Why he expects to be “bullish as all get out”
The McClellan Oscillator was developed by Sherman and Marian McClellan in 1969 using handwritten calculations, and Tom continues refining the family’s long-running market research.
2028: when margin debt, oil, and yields are due to crest
McClellan expects to become extremely bullish once seasonal weakness ends, high-yield breadth improves, and the market’s strong breadth and presidential-cycle factors dominate.
New Harbor’s takeaways from Tom’s charts
He identifies 2028 as a convergence point for the seven-year margin-debt cycle, potential oil and rate peaks, and a subsequent vulnerability for whoever becomes president in 2029.
Where New Harbor disagrees: high-quality bonds
New Harbor agrees that deficits, election certainty, seasonality, and possible late-cycle momentum can support stocks, but remains cautious about high-yield divergence and elevated margin debt.
Why cycle averages hide lost-decade risk
New Harbor is bullish on energy but disagrees with McClellan’s bearish bond view, seeing a conditional opportunity for high-quality U.S. bonds if stocks fall and yields decline toward roughly 3% to 3.5%.
Today’s Fed hike, the next hike odds, and the market reaction
John argues that cycle averages can conceal severe lost-decade outcomes, while New Harbor grows more defensive amid deteriorating indicators and evaluates the Fed hike and the market’s reaction.
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