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The market correction that technical analyst Tom McClellan has been calling for has happened — and now stocks are set to roar higher, he told CNBC on Monday.
“We got the bottom in June that I had been expecting but it really only showed up in the tech stocks,” the editor of the McClellan Market Report said in an interview with “Closing Bell.”
He thinks the rally is going to last until sometime next year.
“We’re still in an uptrend. We’re still seeing positive breadth numbers that are really strong, which is a sign that liquidity is strong. The market might have lots of other problems but if liquidity is strong the market can get through the other problems really well,” McClelllan noted.
McClellan believes the market sent a big signal on Thursday when the CBOE Volatility Index (VIX), considered the best gauge of fear in the market, spiked from the 10s all the way up to 15.
“When you have a big range day like that for the VIX it’s a huge tell that there’s just this emotional washout,” he explained.
In fact, the average daily range was 47 percent, he said. That’s the highest since the day after the election, and stocks went “screaming higher” after that, McClellan said.
“I’m expecting the same thing this time and I’m thinking the positive seasonality of July is going to be a big factor in that also.”
He predicts the top will come in mid-2018.
“Late 2018 is going to start some ugliness that’s going to last into 2019 and it’s going to remind everybody of 2008,” he said.
“Don’t worry about that yet. We’ve got a year to go. But we are starting to see the signs that the market is going to crack.”
One big warning sign is the fact that the record-high spread between the 10-year Treasury and the 10-year German bund is starting to narrow, he said. The peak in that spread usually occurs about a year ahead of a stock market peak, McClellan explained.
— CNBC’s Fred Imbert contributed to this report.