Sunday, March 14, 2010

Let us talk some more Bull

In a previous posting I noted there is no precise definition of a bull market and so I reasoned that if we could identify a bear market we could resolve the bull market argument. This logic is based on the fact the we can’t have a bull and a bear market operating at the same time. I then defined a bear market to be a major index as measured by the S&P500 or the S&P/TSX60 that posts a new 52-week low within a 26 week window. Our last new 52-week low was posted over a year ago and so with the bear gone, welcome to the 2009 – 2010 bull!

Unfortunately the investors out there who are enjoying the current bull still have to endure the endless stream of doom-and-gloom dribble that is served up by the financial media. Last week I scanned a Globe and Mail item Thursday, Mar. 11 entitled “The bear: Dead or just sleeping?” The contributors were the usual bears who have so far missed the 2009-2010 bull and in desperation try to talk the markets down so they can get on board. Are we are to believe this is a bear market sent temporarily into hibernation because the market “has glossed over the harsh realities that face the markets”? The “harsh realities” are credit bubbles, rising interest rates and possible threat of a double-dip recession that could utterly derail the market recovery.

Ok here is a “harsh reality”, firstly bear markets do not fall asleep or hibernate and the markets always lead the current reality. For example the current reality is a news item “Canadian bank profits top $5B” Tuesday, March 9, 2010 CBC News Total profits for Canada's six biggest banks surged to $5.3 billion in the first quarter as loan losses fell and their domestic operations flourished. Those profits are about 75 per cent higher than they were in the first quarter last year when the world financial meltdown was in full swing. The harsh reality is the bank stocks bottomed a year ago in spite of the “harsh reality” at the time which was a pending total collapse of to-days modern financial system. The markets as usual got it right.

The best way for investors to handle any bull market is to work with the three phases of the bull. The first phase is the non-belief period when the first advance is thought to be a bear market rally. At this time you can buy anything – just throw a dart and get invested. The second phase is the logical period, a period of rising prices along with improving fundamentals – a sign the worst my be over. The third and final phase is the recognition period, a period of recognition the old bear is dead and we do indeed have a new bull market. Sideline cash begins to look for lagging stocks that were forgotten during the logical advance of the second phase

Last week I ran a stock scan or filter seeking stocks that were breaking up out of a 10-week price channel and seeking out overlooked stocks that were “hibernating” or base building. Our chart is the weekly closes of one selection, Sherritt International Corporation (TSX-S) spanning about 100 weeks. I have overlaid the 10-week price channel and some relative analysis work. For a list of selections follow this link: http://www.gettingtechnical.com/04_analysis/01_filters.shtml

4 comments:

Prudent Man said...

Hi Bill, does the US Presidential cycle have any correlation to Bull and Bear markets, and if so, how? Thanks.

discreet shopping said...

Hi Bill, Which phase of the bull are we in ? Thanks.

Gettingtechnical.com said...

Hello Prudent Man

According to the Stock Traders Almanac on the Presidential stock cycle the last two years out perform the first two years by a factor of over 2-times based on 44administrations since 1833 The pre-election years have the best record - Bill Carrigan

Gettingtechnical.com said...

Hello Discreet

We are likely in the late stages of the great 2009-2010 bull so at this time acurate stock and sector slection are the key to building good returns - Back in the early stage from March to September 2009 you could throw a dart and win.

Bill Carrigan