The US stock markets have been on fire lately, still
marching higher even after the S&P 500 powered to its best January in 15
years. Doubted from its very birth, this latest stock-market upleg continues to inexorably climb the proverbial Wall
of Worry. But while bears keep on arguing for its imminent demise,
today’s upleg actually still has plenty of
room to run higher. Despite the naysayers, it isn’t too late to buy in
yet.
To understand where the winds of probability are
likely blowing the stock markets next, we first have to gain crucial
perspective on where they have been. And good charts are worth far more than
a thousand words. When the flagship S&P 500 stock index (SPX) is
considered over short-term, cyclical, and secular time frames, a strong
bullish case emerges for the stock markets even from today’s recovered
levels.
The SPX’s latest upleg
was born stealthily from the depths of despair in early October. After
Obama’s mind-boggling profligacy forced the first downgrade of the
United States of America’s credit rating in our nation’s long
history, the stock markets plummeted
in early August. But although fear was actually more than extreme enough for
that to have been the correction’s bottom, a secondary low was in the
cards.
After recovering sharply by late August, an
erroneous US employment report (later completely revised away) helped ignite
serious recession fears. By late September they had mushroomed into a
full-blown recession craze, so
bears were coming out of the woodwork forecasting another imminent SPX plunge.
Excitable economists corroborated this outlook, misleading countless
investors into selling near lows.
But as I wrote in early October right when everyone
was convinced the sky was falling, the radical oversoldness
plaguing the stock markets then was actually very bullish. But the only
traders able to buy near lows to ride entire uplegs
are the hardcore contrarians, who have spent many years steeling themselves
to fight the crowd. Only we have cultivated the necessary discipline and
courage to buy low in times of extreme fear and anxiety when few others will.
And indeed the stock markets soon started rocketing
higher out of those hyper-oversold lows after fear slammed into its effective ceiling.
Despite the financial media and economists entering October super-bearish and
forecasting a stock-market swoon and a new recession, that month ended up
enjoying the biggest monthly rally the SPX had seen since December 1991! It was the best October since 1982’s!
The moral of this story is crystal-clear. Times
riddled with fear and anxiety are the worst time to succumb to peer
pressure to follow the herd and sell. The more uncertainty, the more scared
traders as a group are, the better the buying
opportunity. And while today’s fear, anxiety, and uncertainty are
nothing like early October’s, there is still plenty out there. Uplegs don’t top until these worrying emotions are eradicated.
New Europe fears, centered around
ballooning sovereign-debt yields, dragged the SPX back down again in
mid-November. But this short-lived swoon merely served to establish a higher low that defined the
beautiful uptrend rendered above. An upleg is
simply a period of time where major stock indexes gradually carve higher lows
and higher highs. I discussed this nascent uptrend in
early December.
But despite the SPX continuing to climb on balance,
lingering pessimism from the recession craze remained popular in December.
The bears rightly pointed out that the SPX couldn’t break back above
its critical 200-day moving average. 200dmas are the most important technical
line of all, and often mark the demarcation between bull and bear. After
months of challenging its 200dma, the SPX couldn’t break out.
But all that changed on 2012’s first trading
day, when a relatively-modest rally drove this index decisively above its 200dma. And ever since then, the stock
markets have been off to the races. Despite a mild pullback in late January,
the SPX still achieved its best opening-month performance since 1997. The
SPX’s 50dma even climbed back above its 200dma, the fabled Golden Cross
technical indicator.
Golden Crosses are famous because they often signal
major new upside runs, and even entire bull markets. As more and more
investors and speculators who had been languishing in zero-yielding cash
realized this, capital continued returning to equities this month. By the
middle of this week, the SPX back up to 1350 totally erased the great
majority of the summer correction that so terrified everyone.
The mighty benchmark S&P 500 has now powered
22.8% higher in the 4.2 months since its early-October bottom. This exceeds
the common technical milestone for defining “a new bull market”
of a 20%+ move! But despite the SPX faring so well now, pessimism and
bearishness still dominate discourse. The same brilliant luminaries who
missed this upleg in the first place are now
calling for it to roll over and die!
They were unquestionably dead wrong in early October
when arguing for a new bear market,
yet investors and speculators still eagerly listen to them today. It blows my
mind, as credibility in trading is totally dependent on one’s track
record. At Zeal we were very publicly bullish
in early August and
early October
when everyone was scared. Back in late June I argued why a
new stock bear was pretty unlikely, and in early September I
showed how the sharp August selling was nothing
like that seen early in new bears.
If some analyst or commentator today is frightening
you into not participating in this powerful upleg,
check his track record for crying out loud! Go read what he was writing in late September and early October.
Was he super-bearish right near the correction’s bottom back then just
like nearly everyone else? If he was, if he is not a contrarian, then there
is no reason why he should influence you today.
The SPX’s strong upleg
since that fear climax is now set in stone on the charts. We’ve seen
higher lows and higher highs despite formidable lingering fear and anxiety.
Despite Europe’s perpetual big-government problems, despite unfounded
China growth scares, despite the Obama Administration pissing away
taxpayers’ hard-earned money (and borrowing trillions more) like
drunken sailors, the stock markets are
still rallying.
While this short-term perspective decisively proves
this upleg’s strength, the longer cyclical
and secular perspectives argue for its staying power. It is crucial to
realize that all bull-market uplegs climb a wall of worry, doubters and naysayers
constantly challenging their validity. So we have to discount all that
bearish noise, it is always there. Long-term technicals
continue to overwhelmingly declare that this upleg
is righteous and still has plenty of room to run higher.
This next chart compares the SPX’s current
cyclical bull that was born out of the secondary stock-panic lows in March
2009 with a key technical indicator, the Relative SPX. Based on my simple,
powerful, and very profitable Relativity trading
system, the rSPX restates the S&P 500 as a
multiple of its own 200dma. These
multiples are perfectly comparable in percentage terms over time and tend to
form nice horizontal trading ranges.
All cyclical bull markets flow and ebb, exciting uplegs are followed
by challenging corrections. This dynamic is absolutely necessary for keeping
sentiment balanced, which ensures a healthy bull with maximum longevity. Excessive
greed after major uplegs can only be erased by
corrections and the excessive fear they spawn. And out of those fear climaxes
the next major upleg is born, the cycle begins anew.
Today’s young upleg
is actually the third of this SPX
cyclical bull’s. The first rocketed 79.9%
higher in 13.5 months, its massive gains largely a function of the preceding
deeply-oversold secondary stock-panic lows. This dragged the rSPX to very overbought levels
over 1.10x, the SPX was trading more than 10% above its 200dma. So the first
correction immediately followed in mid-2010, a 16.0% swoon over 2.3 months.
Just after that correction, much like today, ostrich investors
reigned supreme. Scarred by 2008’s epic once-in-a-century stock panic,
investors are so gun-shy that they believe every material selloff is going to
cascade into another panic-like event. But this is incredibly irrational, as
the next 100-year storm certainly isn’t due a few years after the last
one. So the usual bull-market wall of worry paralyzes them into inaction,
their capital languishes in cash yielding
nothing. Inflation actually erodes
their capital!
But as the second upleg of
this SPX cyclical bull subsequently proved, sidelined investors miss out on
huge gains. The SPX climbed another 33.3% in 9.9 months, peaking in spring
2011. By then once again the SPX was overbought per the Relative SPX
technical indicator, spending much of early 2011 trading above 1.10x. We and our subscribers capitalized on this greed by
selling many trades we had bought cheap the previous summer after the first
correction for very large realized gains.
As I warned in April 2011 when everyone was bullish
and greedy without a concern in the world, another SPX correction
loomed. Did your advisors warn you about topping stock markets as that second
upleg matured? Go back and read what they were
writing in April 2011. If they were
super-bullish like everyone else at that major topping, why on earth would
you trust their pessimism and anxiety today?
While that second correction was slow in coming, it
finally arrived with a vengeance in early August when Obama’s horrific
overspending came home to roost in the USA’s once-vaunted credit
rating. By the time that secondary recession-craze low arrived in early
October, the SPX had tumbled 19.4% in 5.2 months. And out of that very
despair and extreme fear, today’s third upleg
of this bull was born.
Take a look at this third upleg
in the context of this entire cyclical bull’s chart. It’s still
pretty small in the grand scheme, right? It has only rallied 22.8% in 4.2
months compared to the earlier uplegs’ 33.3%
in 9.9 months and 79.9% in 13.5 months. Granted, that first upleg was far larger than average emerging out of those
radically-oversold secondary stock-panic lows. But today’s mere 22.8%
in 4.2 months is still much too small even for an average cyclical-bull upleg.
And though the SPX is nearing new cyclical-bull
highs again (exceeding April 2011’s post-panic peak of 1364), it
hasn’t even hit this bull’s uptrend resistance yet. As the second
upleg was topping, the SPX spent the better part of
a half year over this line! And
look where the last Golden Cross happened, in late 2010. At that point as the
SPX neared new bull highs, much like today, the second upleg
still remained very young. Odds are today’s third upleg
is similarly young relative to the recent Golden Cross.
When the second upleg was
peaking, the SPX spent several months in overbought territory exceeding 1.10x
its 200dma. Today the SPX isn’t
even overbought, having yet to get anywhere close to even approaching
this overbought metric based on the latest 5 calendar years of trading data.
The more I study this chart, the more silly the
bears’ endless worries today about this upleg’s
staying power seem.
Despite their excellent January and nice 4-month
run, today’s US stock markets are certainly not overbought within cyclical-bull-to-date
context. And the recent technical action looks absolutely nothing like that
seen near the toppings of this cyclical bull’s first and second uplegs. It is illogical and irrational to assume mere
anxiety and the usual wall of worry will slay today’s young upleg so prematurely.
This final chart is probably the most valuable
perspective of all, and the hardest to obtain. It zooms out to the secular
time frame, showing the entire secular
stock bear since 2000. This secular analysis was the major reason why I
correctly argued against the crowd in summer 2011 to
declare this cyclical stock bull
almost certainly wasn’t finished yet. If you understood this before the
latest correction, there was nothing to fear but fear itself.
Secular stock bears are gigantic 17-year sideways grinds driven by Long Valuation Waves. In
this chart the SPX’s current secular bear since 2000 is superimposed
over the last secular bear straddling the 1970s. Within these giant secular
trading ranges, an endless series of shorter cyclical bears and cyclical
bulls alternate. Investors and speculators who understand these can earn
fortunes in secular bears!
Way back in early 2000, the first cyclical bear of
this secular bear (which I predicted in 2001)
started hammering the stock markets lower. It ultimately led to a brutal
49.1% loss in 2.6 years. And out of that despair, a new cyclical bull within
the secular bear was born. It ultimately powered 101.5% higher in 5 years by
late 2007. With the SPX back up at its pre-secular-bear highs, another
cyclical bear was due.
And indeed it started out normally in late 2007 and
early 2008, but then that crazy stock panic greatly accelerated it. By the
time the dust settled after that once-in-a-lifetime
fear superstorm, the SPX had plunged 56.8% in just
1.4 years. But at least that cyclical bear was over. Out of those lows,
today’s cyclical bull was born. As you’d expect after a stock
panic, it has been exceptionally strong. As of its latest high in April 2011,
this cyclical bull had catapulted 101.6% higher in merely 2.1 years!
Now the normal rule of thumb for the cyclical
bear-bull cycles within secular bears is they cut the stock markets in half before doubling them again. A cyclical bear usually leads to 50%ish
losses, and the subsequent cyclical bull usually leads to 100%ish gains. The
net result is a gigantic sideways grind, but it is still super-profitable to
trade if you take the time to understand the underlying cyclical bear-bull cycles.
But the secondary stock-panic lows
ushered in by the new Obama Administration’s withering attacks on
investors and capitalism in early 2009 dragged the SPX lower than the usual
50% cyclical-bear losses. So today’s cyclical bull launched from a
much-lower base than precedent. Thus the doubling we’ve seen in the SPX
since then is a bit misleading. Cyclical bulls tend to carry the SPX back up to its secular resistance, which is
around 1500 in this secular bear.
Thus as long as the S&P 500 is below 1500 or so,
as long as this secular resistance doesn’t threaten this upleg, it still has plenty of room to run. Thanks to the
stock panic, the preceding cyclical bear was considerably larger and deeper
than normal. And therefore of course the mean reversion out of such an
ultra-rare event, the subsequent cyclical bull, ought to be proportionally
larger to the upside.
So as I’ve argued since summer 2009, today’s
cyclical bull is highly likely to challenge 1500 before it rolls over into a
new cyclical bear. And with the SPX merely around 1350 this week, we still
have lots of room to run before secular-bear resistance looms. There is also
one more important secular argument in favor of today’s cyclical bull
not being mature yet, the average
duration of mid-secular-bear cyclical bulls.
As I discussed back in June,
the average lifespan of mid-secular-bear cyclical bulls during our current
secular bear and the previous one straddling the 1970s was nearly 3 years each. At our current
cyclical bull’s latest interim high last April, it had only run for 2.1
years. It was far too young to give up its ghost! And after a stock panic,
the odds heavily favor the rebound cyclical bull actually being longer than average rather than
shorter. That is necessary to help rebalance away the extreme panic sentiment.
These secular arguments in favor of today’s
SPX upleg having room to run yet are very powerful
and compelling. Not only is this benchmark stock index still well below
today’s secular-bear resistance near 1500 that is the
highest-probability cyclical-bull upside target, but this cyclical bull
remains too young relative to
average mid-secular-bear cyclical bulls. There is no reason to fear a new
cyclical bear yet.
There you have it, and perspective is everything for
successful investing and speculating. While the bears fall all over
themselves fretting about the latest Greece debacle, and economists froth at
the mouth trying to conjure a recession into existence from isolated data
points, longer-term technicals and sentiment
resoundingly declare today’s SPX upleg is far
from over. But the incessant daily noise is distracting traders, keeping them
cowering in fear, hiding in cash, and losing out on huge gains.
But thankfully it is not too late to participate.
While the easy general-market gains have already been earned, great
opportunities exist elsewhere as other sectors start racing to catch up with
the SPX. My favorite is the commodities stocks, which continue to be
incredibly unloved due to excessive US dollar strength. But
as this SPX upleg continues gradually climbing, the
safe-haven dollar will keep rolling over igniting a heck of a fire under
beaten-down commodities stocks.
And few can help you thrive in this sector like we
can! At Zeal, we are dedicated students of the markets and therefore hardcore
contrarians. We walk the walk in
buying low when others are scared, and selling high when others are greedy.
Since 2001, during this brutal secular stock bear when the SPX was flat, all
598 stock trades
recommended in our subscription newsletters have averaged stellar annualized
realized gains of +48%! You too can share in the hugely profitable fruits of
our labors.
We publish acclaimed weekly and
monthly subscription
newsletters loved by speculators and investors all over the world. In them I
draw on our vast experience, knowledge, wisdom, and ongoing research to
explain what the markets are doing, why, where they are likely heading, and
how to trade them with specific stock trades as opportunities arise. Subscribe today and
start thriving! We also publish comprehensive fundamental reports on
our favorite stocks in promising sectors. The latest covers the
super-high-potential junior gold
producers. Buy your report today!
The bottom line is despite the bears and naysayers,
today’s SPX upleg still has plenty of room to
run higher yet. This upleg remains way too small
and short-lived by cyclical-bull-to-date standards, and the SPX is nowhere
close to being overbought yet. The recent technicals
we’ve seen look absolutely nothing like the topping events at the ends
of this cyclical bull’s first and second uplegs.
And from a longer secular perspective, the SPX is
still well below its secular bear’s resistance of 1500. On top of that,
today’s cyclical bull following a once-in-a-century stock panic
hasn’t even reached average duration yet. All this
means the odds remain heavily in favor of both this cyclical bull and its
current upleg still having plenty of room to run. It
isn’t too late to buy in if traders can overcome their fears.
|