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The
$17 billion hostile bid for Cadbury 'should' bring home the inherent
underlying actual strength of this bull market as the bid signals that
business is returning to normal. Today's bid by Kraft Foods sent the Cadbury
stock price soaring by more than 38% and clearly illustrates that
multinationals are increasingly awakening from credit crisis fear to taste
greed at being able to pick up corporate giants such as Cadbury at rock
bottom recession prices even after a 38% one day price hike. Watch this space
for many more mega bids to come as the bull market momentum continues to
gather steam as we have a long, long way to go before we reach the Merger and
Acquisition mania levels associated with BULL market Peaks.
Meanwhile
bull market deniers in the face of overwhelming evidence of a bottom i.e. as
evidenced by the price trend continue to cling on to literally anything that
leaves the door ajar towards revisiting the March lows and below. Even
resorting to delving back into the midst of time to the 1930's for any
glimmer of hope. It should be obvious by now to everyone that transposing
current price action onto a graph of the 1930's bear market makes it rather
obvious that THAT is NOT going to happen?
One of
my fundamental rules of analysis is that the further one deviates from the
present the more probable that one is going to be wrong, and the 1930's is
more than just a deviation, at most I would go back perhaps a year to look
for relative strength and weakness. But nearly 90 years? That era is long gone
and buried and bears NO significance to the PRESENT! Yes we have echo's
through time, but NOT THAT FAR BACK ! For actual market impact events on to
today's markets one needs to look at the peak in the housing markets and
credit crisis events of the past 2 years where the three most notable events
were -
a. The
Lehman's sparked Financial collapse of Sept / October 2008
b.
Zero Interest rates.
c. the
implementation of Quantitative Easing.
They
are the most important echo's from the recent past impacting on the present,
rather than trying to match a chart from the 1930's to the present.
Is
this a Bull Market or a Bear Market Rally?
My
point of view is simple (it is good to keep it simple)- Pick up any reputable
technical analysis book and you will read that that a bull market in stocks
is confirmed when an major stock indices (that's the DJIA) rallies by 20%
from the low (allowing for a few days of whipsaw), similarly a bear market is
confirmed when an stock indices falls by 20% from the high , therefore
regardless of perma views of this being a bear market rally, the facts are
clear that under the basis of technical analysis this rally has long since
been confirmed as a bull market more than 30% ago!
The
Rules exist for a reason and that is for the investor / trader to recognise
when they are WRONG ! Okay for several reasons, another is to arrive at a
FIRM TRADEABLE CONCLUSION.
However,
the answer is NOT to change the rules ! But to change your opinion ! Being
stubborn in the face of the trend is the sure fire way towards financial
oblivion!. Yes those that clutch to perma views will soon eventually have an
opportunity to crow loudly, but the bottom line is to monetize on analysis
through means of investing and trading and in that regard making say 15% on a
plunge is pretty much meaningless against a 50% loss on the preceding rally.
For me, the bull market remains in tact as long as the DJIA steers clear of
20%+ declines, for if such a decline occur then that is the market telling me
what it wants to do rather than me telling the market what it should do!
Stocks
Bull Market Trend Update
The
stocks bull market continues to resolve towards the pattern I painted some 7
weeks ago - Vicious Stocks Stealth Bull Market Eats the Bears Alive!, What's
Next?
CONCLUSION
- My earlier fears about a bull trap appear to be unfounded, the stock chart
is talking that we are in a stocks bull market, and is suggestive of a trend
higher towards a 2009 target of between 9750 and 10,000, with a high
probability that we may get there before the end of October!. Key danger
areas for this scenario are a. for the trend line to contain corrections, and
b. that 8080, MUST HOLD.
The
last update of 3 weeks ago (Stocks Stealth Bull Market Crushes Bears Hopes
Again) showed the trend resolving towards an earlier peak given the strength
of wave 1 which implied a weaker waves 3 and 5.
The
Price action to date has shown relative strength against the forecast of a
month ago, this suggests a higher target than the original 9750 to 10K before
the end of Oct 2009, the secondary stated target was 10,450. However it also
suggests that the market may put in an earlier peak. I am still leaning
towards the next correction AFTER the peak to be of greater significance than
the last correction from June to July. Also, whilst my in depth economic
analysis is on the UK economy, however much of the conclusions could equally
be applied to other western economies, the analysis of February 2009 has been
projecting towards a a DOUBLE DIP recession (updated June 09) which has
negative implications for stocks during 2010, but for now DON'T be silly,
don't fight the stocks bull market (time to drop the word stealth).
Subsequent
price action has continued to imply a scenario that resolves towards a 5 wave
pattern, though this is now far too easy to interpret which therefore
suggests a more complex pattern. The velocity of the uptrend is also in line
with the original projection of 22nd July as indicated by the Blue Arrow,
which continues to resolve towards a target juncture date of mid October
2009.
The
target for the termination of the current phase of the bull market rally was
between 9750 and 10,000. As mentioned above, I am not expecting an easy ride
for the fifth wave as clearly it is an obvious pattern to interpret following
waves 1,2,3,4. What does this mean ? Well wave 3 is screaming weakness, so
that suggests a weak push higher rather than something that resembles wave 1.
The
MACD is also signaling serious price weakness as there is clear divergence
taking place between the rising trend and a falling MACD, very similar to the
June peak.
Two
possible outcomes -
a.
That the fifth puts in a lower peak than the wave 3, which is significantly
more bearish.
b.
That we get some sideways drift (possible false break lower) before a sharp
rally for a higher fifth into the target zone.
Despite
the increasingly bearish technical indicators at this point I continue to
march with the bull market and favour outcome b. ahead of a more serious
correction that would first 1. target target the main support trendline and
2. 8900 Previous Peak.
Robert
Prechter presents an alternative view for the 'bear' market in his latest 10
page newsletter, which can be downloaded for free here.
Trading
Lesson From this Update - The further you deviate from the present in terms
of analysis / trade scenario building, the greater the probability that you
will be wrong and therefore MUST attach LESS importance to whatever you are
looking at, particularly a chart of the Dow from the 1930's for EVEN IF it
repeats it will be pure coincidence, as there CANNOT BE ANY ECHO from the
events of that time into TODAY's Market ! You are much better served by
practice reacting to price movements in real time then getting sidelined by
historic events or fundamentals.
Very,
very quick Gold update - Double Top? For my next in depth analysis of Gold
subscribe to my always free newsletter.
Your stock index
trading analyst.
Nadeem Walayat
Market Oracle.com.uk
Nadeem Walayat is
the editor of MarketOracle.co.uk.and has over 20 years experience in trading
and investing.
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