Refuting the Bears

Bears will point to overly bullish sentiment readings and anemic volume as reasons to be wary of “The Big One” or bull market ending. They are absolutely correct regarding the sentiment surveys, but this story has been seen before. And sentiment is almost always much frothier than the high positive readings of today. Sometimes, a correction unfolds while other times the market enters a trading range. And in outlier cases, every once in a long while, stocks begin to melt up to a major peak down the road.

Total stock market volume has become one of the most misunderstood and overused indicators. In the good old days, it was a valuable analytical tool, however, with the proliferation of exchange traded funds (ETFs), high frequency trading, decimalization and off exchange dark pools, New York Stock Exchange volume is no longer accurate in my opinion or largely valuable.

The entire bull market since 2009 has been on a lower and lower reported volume with higher and higher prices. In fact, heavily increased volume has only been seen during pullbacks and corrections since 2009. Technical analysts Edwards and Magee of Technical Analysis of Stock Trends fame will probably roll over in their graves with this comment, but reported volume does not really matter anymore in technical analysis. (That should open the floodgates of emails from the TA crowd.)

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Early Equals Wrong

The bull market of 2009-2014 has to be one of the most disavowed, unloved bull markets of all time. Each and every time it sees even routine weakness, bears come out of the woodwork with calls of 1929, 1987 and 2007 all over again. And then stocks stop declining and continue on their merry way higher. This is exactly how long-term bull markets survive, thrive and work higher.

I can’t tell you how many very smart (and some not so smart) industry colleagues have been either calling for the end of the bull market or for a 20% decline for years. I read their weekly newsletters and just scratch my head, not because they are wrong. I am wrong more times than I want to remember. It’s okay to be wrong in this business, but you cannot stay wrong for months and months, quarters and quarters. You can’t break out prominent interviews and articles from others who are also wrong and use them to substantiate your wrong position. Too many people sit and wait with losing positions and reason it away as being early. In this business, early equals wrong.

It isn’t until the masses buy every dip that the bull market begins the topping process. Remember, I said “begins” not “bull market immediately ends”. If you remember back to late 2007 and early 2008, stocks pulled back during the fourth quarter and the masses bought. And when the market had a 20% decline in January 2008, only short-term sentiment became sufficiently negative to support a rally. Intermediate and long-term sentiment remained positive until the Lehman fiasco, which is why it was difficult to hammer out any type of significant bottom.

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