Dear Grizzlies,
In writing about the economy or the stock market, the goal is to help investors make money and to avoid major risks. This demands a full understanding of the cause/effect relationship; an objective examination of the important relevant data; and conclude rationally therefrom. Analysis is not just simple commentary. It is not finding arguments to support one’s own biases. It’s not about ego massaging. It’s not propaganda. It’s not salesmanship or showmanship.
In the 2002-2007 bull market (as indicated by the N.Y.S.E. Advance-Decline Line), the broad market commenced its bull market in November 2000). You insisted that the rally was nothing more than “a bull market within a secular bear.” You didn’t stop singing that songuntil mid 2005 when you finally realized that it was a good old-fashioned bull market.
Since March 2009, you have been singing the same song again.It’s a most clever forecast for if the market goes up, you are right and if the market goes down, you are also right. From March 2009 to date, the S&P 500 Index has gained nearly 79%, but that doesn’t tell the whole story as many, many stocks are up several hundred percent to over 1000%.
You obviously haven’t got a clue about what makes the market tick. Clearly, you are more interested in nomenclature, salesmanship, and gum-flapping than helping investors profit from the market. Despite evidence to the contrary, your stance reveals your ignorance.
Many of the world markets from Argentina to Turkey, have been posting record highs. One can add the Colombo Stock Exchanage in Sri Lanka and the Jakarta Composite Index in Indonesia to the list. Record highs for the Bovespa is a dead certainty. Strange behavior for a “secular bear market” is it not?
In a secular bear market, markets are supposed to trace out lower lows and lower highs over time, and not post record highs.
Also, your ignorance is further shown by saying that the market bottomed in March 2009. That was only true for the major market averages. You never make note of the fact that the financials are heavyweights on the Dow Jones Industrial Average and the S&P 500 Index.
Because of the burst of the financial bubble, the clobbering of the financial issues exaggerated the decline inthe DJIA and the S&P, and caused them to breach their 2002 lows. The broad market, in fact, performed far better than the major market indices.
Note that the N.Y.S.E. Advance-Decline Line was nowhere near its 2002 low. Also, take a gander at stocks such as A, AAPL, AMZN, ATML, BIDU, IBM, ORCL, QLGC, and many of the consumers and retailers. These stocks have been posting bull market highs or record highs.They resemble nothing like the Dow Jones Industrial Average or the S&P 500 Index.
Moreover, you have the silly notion that all stocks top, decline, bottom, and rise altogher at the same time. That’s balderdash! Unless the economic cycle is repealed, the bell never rings. You were totally unaware that led by the airlines, a “rolling bottom” commenced in July 2008.
On October 10, 2008, an “internal” bottom was established as that month, over 60% of the U.S. stocks, the Asian markets, the Latin American markets, along with Portugal and South Africa, bottomed. Many others made their lows in the November 2008 – February 2009 period. Financials, real estate and the deep cyclicals were the last to bottom and made their final lows in March 2009. Even if you had the prescience to pick the exact low and the exact minute of that low, you would have missed 90% of the market rally.
Furthermore, take a gander at the N.Y.S.E. Advance-Decline Line and the Value Line Arithmetic Index (which is an unweighted index of over 1,600 stocks).Both have been posting record highs. My understanding of a “secular bear market” is that the market averages trace out lower lows and lower highs. They don’t post record highs after record high.
You argued that the N.Y.S.E. Advance-Decline Line is not indicative of the market as it comprises many convertible preferreds, interest-sensistive issues and ETFs. Why didn’t you apply the same argument for the 2007-2009 bear market or the 2000-2002 bear market?
Also, how do you explain the record high in the “Operating-Companies-Only” Advance-Decline Line (which excludes convertible preferreds)? In a bear market, over time, more stocks decline than advance and in a bull market, more stocks advance than decline over time. Should it not? What’s the beef? Clearly, it’s ignorance and denial.
You find the “V”-shape recovery surprising? Clearly, you don’t know which end is up. When you were panicking in the final quarter of 2008 and the first quarter of 2009, you were forecasting a depression, too busy scaring investors. You didn’t pay attention to what the Fed and other central bankers were doing.
Had you bothered, you would have noticed that the whole world pumped an unprecedented amount of liquidity into the system. Were they trying to create a depression? You don’t need a doctoral degree in economics from Wharton to know that the central banks were trying to arrest the economic death spiral.
True, it was a near-death experience, but once again, they succeeded. Also, have you noticed that every piece of economic data reported to date shows a “V”-shape recovery? Little wonder the world markets have been skyrocketting.
You continue to complain that the current market level is not supported by fundamentals. Do you not know that the stock market is a leading economic indicator and the economy doesn’t lead the stock market?
For many months, you have been of the view that because of the collapse in the housing market, the high unemployment rate and low savings, consumers are cooked. Without the consumers, the recession will deepened and prolonged.
How do you explain the spectacular performance of the Consumer Discretionary issues? From its March, 2009 low, the XLY rose over 120% and outperformed the S&P 500 Index by a wide margin. Also, how do you explain the record highs in stocks such as Apple, Amazon, Dollar Tree, Estee Lauder, Skechers, etc.?
Others such as Big Lots stands at a 12-year high; Norstrom is up nearly 700% from its bear market low and stands at a new bull market high. Gap, Inc. stands at an 8-year high; and Saks is up more than 600% and also stands at a new bull market high. Where are consumers finding money to spend? Are the buyers of these stocks insane?
Does the housing market still worry you? No doubt you are still worried about more foreclosures and commercial loan defaults. You put forth endless reasons how the housing sector will drag the economy into a black hole. Are you aware, however, that the real estate (IYR) and homebuilders (XHB) climaxed in March 2009 and in recent months both have been posting new bull market highs?
If the prospect for this sector is so bleak, why are they acting so superbly? It is interesting to note that their lows were made in March 2009, right at the trough of the recession. As you know, the recession ended at the end of the second quarter of 2009 and the economy has been rebounding sharply.
Is their performance so surprising? As you know, the market is a leading economic indicator. Why do you persist in fighting the last war?
Corrections are normal in a bull market as rallies are normal in a bear market. To be sure, given the market’s overbought condition and deterioration in short-term sentiment reading, a correction can begin any time. But a correction is not a bear market. The 2007-2009 “bear market” was nothing more than a cyclical bear market within a secular bull and the secular bull market has long resumed.
Listen up Grizzlies, the market’s long-term trend, bull or bear, is determined by the monetary, economic, valuation, sentiment, and supply/demand factors. Short-term moves are driven by technical and sentiment factors. Short-term corrections notwithstanding, until the major market factors give bearish readings, one has to maintain a bullish stance for the long-term. Go back to the drawing board and do your homework.
To err is human, but to argue with the market is an exercise in masochism.
Leon Tuey
Mr. Tuey is a veteran technical analyst
