Last week, I cautioned you to be vigilant regarding an end to the current nearly 5-year bull market. I did not say the end was imminent; although it could start at any time. Indeed, this bull market could last for several more years. The average major bull market, historically, has lasted for more than a decade (see DJIA Historical Consolidation Periods chart, below), except for the crash of 1929, if you assume the beginning of these multi-year bull markets start at a break-out of a multi-year consolidation period and ends at the beginning of the next consolidation period (see bull markets following each of the green-shaded Consolidation Periods in the chart, below).
The most recent consolidation period began in January of 2000 and ended when the DJIA significantly crossed above the 14,000 level in February of this year (see Current Consolidation chart, below). One could easily argue, if you assume we are in a 'normal' market, that the move above 14,000 was the start of a real bull market that could last another decade if history repeats itself as it did in 1925, 1950 and 1982.
If I believed this is a 'normal' market, then I would have a lot more confidence that this raging surge higher will continue for a long, long time; with only short-term 'corrections' of 10% or more.
I like trading in a bull market. Who doesn't? My Signal Investor portfolio (see stats, below) is up nearly 40% for the year, while the S&P 500 is up 26.62%.. By the way, follow this link if you want to see 100% of the historical trades on this portfolio.
There are two major flaws with assuming the market will only move higher:
In other words, global markets in general and the US stock market in specific, are being propped up through artificial stimulus. This is wonderful for those of us who own stocks, but it is a terrible thing for true economic underpinning. We, as stock market investors, want our money invested in stocks with solid economic foundations for supporting both top and bottom-line growth. Unfortunately, a significant portion of the success of our portfolios is based on temporary and unsustainable free money being printed one way or the other by central banks.
This, of course, can continue indefinitely; but not forever. So, there are some important issues to consider when putting your hard-earned money to work in the stock market:
The bottom-line? Stay vigilant and remain skeptical, but by all means, do not stay out of this bull market.
This past week I received a well thought-out email from a subscriber, which basically said, "We are in a raging bull market so quit working so hard and just put everything in the stock market."
My first thought was, "With emails like this, are we now at a market top?"
Certainly, at the top of every major bull market, there will be those that jump in with the assumption that the market can only go higher. In most instances, the last people to join a bull market are the ones who cannot stay on the sidelines any longer and finally, after saying the market cannot continue to move higher, capitulate and jump in with both feet and all their money. This type of investor inevitably comes in just before a major crash or correction.
I am a firm believer in staying the course in all markets. In my case, the "course" is to be 100% in the market when it is in a bull trend (as it is now) and 100% in the market (utilizing inverse ETFs) in a bear market (as we will encounter at some point in the future).
The market will one day, either move into an extended bear trend at worst... or move into another consolidation period, at best. In the meantime, I will continue to 'work hard' looking for stocks that have upside potential.
Through 11 months this year, I am beating the market by about 45.7%. I'd say 'working hard' has paid off for me and those who follow my example.
Have a great week in the market!
- There are trillions of dollars of not-real money being pumped into financial structures around the world in the form of central bank bond (and other) buy-back schemes (aka, monetization of sovereign debt).
Can central banks and sovereign governments print enough fiat money to outpace real economic conditions that are, at best, anemic? You and I both know that real economic conditions in the US are weak, at best. Real unemployment is unsustainably high. The country is being forced into a 30-hour Obamacare-induced work-week. Take-home pay has dropped significantly over the past 4 years. Far too many people have given up looking for a job. Too many people are on non-social security government assistance just to survive. What is worse, there does not seem to be much if any improvement coming in the future in regard to these stats.
Can the US and global economies actually get back on their feet with real top-line growth and expanding numbers of employees before the central banks quit juicing the market? If economies and employment numbers can improve significantly (the operative word), then central banks can dial back their price-fixing of interest rates and extremely loose monetary supply. If this can occur reasonably simultaneously, then the markets could soar higher. Unfortunately, those are some very big if's.
- There is a very real possibility that the Obama-driven liberal experiment regarding the takeover of healthcare in the US, will be a colossal failure. Not taking one side or the other, if this does occur, then the uncertainty of one-sixth of our economy could be a significant catalyst to a downturn in the stock market. This social experiment is the largest power grab by our government in history and time will tell if it is truly for the good of the people. There are strong arguments on both sides and the current roll-out has not been well received by most people. The problem is, there does not seem to be a viable alternative at this juncture. It's a little like being taken over by the Borg in Star Trek. Once you are added to the 'collective', there is no removing the implants from your system without killing the patient. We can only hope there is a happy ending to this unfolding painful story.
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