The 1996 summer low, like many, set up a nice rally into year end. Good enough to prompt Alan Greenspan to make his 'irrational exuberance' remark in December 1996.
The economic climate was different in the 1990s than it is today, and this analogy is not meant to imply that SPX will rally hard another 3 years. The current rally will end differently. This is one example of how it might end.
If nothing else, take away that the risk/reward from the end of April to August 1996 was about 2:1 negative. That's probably very similar to the risk/reward right now.
Also take away that the 1995 rally is the benchmark for hot streaks. The current rally is now its only competitor. This is in an exceptional period that won't likely be repeated for another 20 years. The 1990s are remembered for the big gains, but 1996, 1997 and 1998 all included 5-7 month periods where the markets chopped and swooned, completely unlike 2013 and 1995.
By July 1996, AAII bears were up to 40% (29% today); Investors Intelligence bull/bear ratio was down to just 0.94 (2.7 today); the weekly RSI(5) was only 23 (65 today). These are likely to be useful markers for a washout this summer.
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