| My take on the stock market changed last week, | | | | provide good entry points then. That's where we are |
| because I started to buy and recommend some | | | | at the moment actually. |
| stocks, something I haven't done in a long time. The | | | | By June though after getting stopped out on the |
| economy is still bad and I don't see any signs of a | | | | short side a few times I started to wonder if I was |
| real recovery yet and certainly not a sustainable | | | | on the wrong side of things, but still thought even if I |
| economic expansion, but it appears that the stock | | | | was we'd still get a nice correction. The market |
| market is just going to keep going higher anyway. I | | | | started June above the 200-day moving average. I |
| do not need to know why to make money. You | | | | said that if it stayed above it for six weeks then the |
| make money in the market by staying aligned with | | | | action would be confirmation that all of the people |
| the market trend until the market proves you wrong. | | | | saying we are in a bull market are right. However, if it |
| And it looks like the overall intermediate-term trend is | | | | fell below it and then went into the 800-850 range |
| up. | | | | by early August then they would probably be wrong |
| Being overbought right now doesn't matter. | | | | and we should expect to eventually see the lows of |
| The stock market is entering a confirmed cyclical bull | | | | March test or broken in the Fall. |
| market. That's a big thing for me to say when I've | | | | We got one down to the 870 area on the S&P |
| been calling this a bear market since October 2007 | | | | 500 at the start of this month and it looked like the |
| and even during the past few months, but last week | | | | correction could last even longer. But then the |
| changed my views. I'll explain why in a second. | | | | market held that support level and rallied straight up |
| First you have to understand that cyclical bull | | | | to make a new high last week. The strength of that |
| markets are different than secular bull markets, | | | | rally last week is what has changed my views from |
| because they do not lead to all time highs, but are | | | | being bearish to seeing this as a cyclical bull market. |
| big 8-24 month moves within a secular trading range, | | | | The S&P 500 has been above its 200-day |
| like you saw after the bottoms in 1974 and 2002. | | | | moving average now for six weeks. |
| Once the bull market ends the market averages then | | | | To me this is a confirmation moment just as the |
| go back down towards the secular lows or go into | | | | price action in December of 2007 confirmed that we |
| some sort of sideways trading range. | | | | were in a bear market this price action confirms that |
| Overall such a market is tough for investors in mutual | | | | we are in some sort of bull market. Yeah I didn't get |
| funds over the long-term, because they end up | | | | in on the March low, but almost everyone who was |
| holding for big losses at times and then just sit there | | | | bullish in March were bullish throughout most of last |
| and make their losses back when things turn around | | | | year two and held all of the way down in fear of |
| only to lose them again. While the typical buy and | | | | "missing out". |
| hold forever guy just spins his wheels money is | | | | Back in 2007 I pointed out how the moving averages |
| made either trading the averages or by buying | | | | were saying we were in a confirmed bear market to |
| individual stocks outperforming the market averages | | | | people and had dozens of people get angry and give |
| instead of trying to buy the market as a whole. | | | | me a list of reasons why this couldn't be so. Some |
| I have no idea how long the bull market will last or | | | | said the Fed would never allow the market to drop. |
| how high the market will go from here. | | | | They noted that they were lowering rates like crazy. |
| What I do know is that it will provide an opportunity | | | | People on CNBC said we were just in a |
| to finally make a lot of money in individual stocks in a | | | | short-correction. The economy seemed to be fine. I |
| easier fashion than we've experienced over the past | | | | don't want to name names, because this one guy |
| year and a half and do not worry if you are not long | | | | threatens lawsuits against anyone who says anything |
| you haven't missed anything, because the money to | | | | critical, but one famous name would say it is a bull |
| be made isn't in chasing the market averages higher, | | | | market and if you sell you'll miss out on everything so |
| but in individual stocks when they line up to go up. | | | | a lot of people were simply scared death that if they |
| There is only one S&P 500 to buy, one DOW, | | | | sold they would miss out on gains. |
| and one NASDAQ, so yeah if you want to get the | | | | But the market action is all that mattered then. And |
| ETF's it is easy to "miss out." But with individuals | | | | it is all that matters now. I'm not going to make the |
| stocks there are literally thousands of ones to | | | | same mistake that the people who denied the bear |
| choose from and the risk to reward is better in | | | | market did myself right now. Who knows why it is |
| them. With ETF's to make HUGE money you really | | | | going up - it just is. It could be that the stock market |
| need to go on margin hence the popularity of the | | | | is looking at the coming bottom in real estate prices |
| ultra-ETF's, but with individual stocks there is need to | | | | a year from now and is going up ahead of some |
| margin yourself to make a good return, because | | | | positive GDP quarters. It could just be the Fed is |
| when you buy the right ones it is easy to make big | | | | printing so much money. Who knows, until the trend |
| gains in them. | | | | is over it is what the cause is. There is simply more |
| In fact you see it happen all of the time. For example | | | | money going into stocks than going out. |
| one stock I bought last week rallied over 14% on | | | | And you may not know it, but I've wanted to get |
| Friday alone. I'm sure you may have a stock you | | | | bullish on the market for a long time. I've been |
| don't own that you wish you bought. Don't worry | | | | looking forward to going long individual stocks, |
| about individual stocks and missing out, because there | | | | because a lot more money can be made in them |
| is always another one around the corner. Never | | | | then in playing the ETF's - which had been my |
| chase anything. | | | | primary strategy for making money in the stock |
| Let's look at the stock market and what has caused | | | | market since the bear market started - and is one I |
| me to change my view of it. | | | | am now abandoning. |
| In the Fall of 2007 I started to point out all of these | | | | As long as the market is in a cyclical bull market the |
| signs that we were probably in a bear market. Then | | | | money to be made is in individual sectors and |
| in December 2007 I said the bear market was now | | | | individual stocks. We really don't need the market to |
| confirmed by the 150 and 200-day moving averages. | | | | go up a whole lot to make money in them. It is |
| In bear markets these moving averages act as | | | | tough to really tell how high the market may go up |
| resistance and in bull markets they act as support. | | | | or for how long, but my guess is that we'll at least |
| However, if the moving averages peak and start to | | | | see it go up into the first quarter of 2010 and we |
| turn down and the market stays below them for | | | | could easily see the S&P 500 go into the |
| more than six weeks then you are in a confirmed | | | | 1150-1250 by then. 1150 would be a 50% |
| bear market. In fact this is my DEFINITION of a bear | | | | retracement of the high of the Fall 2007 and the |
| market - not some fixed percentage the stock | | | | March 2009 low after that who knows. In the 1970's |
| market has to go down, but the overall price action | | | | the market traded all of the way back up to its |
| of the bear market, which the moving averages | | | | secular highs after the 1974 bear market thanks to |
| make totally clear. | | | | huge inflation. If we get a ton of inflation in a year or |
| You can turn this around too though - if the moving | | | | two from now something similar to the 1970's could |
| averages are acting as resistance and then start to | | | | be in the cards. |
| flatten out and the market goes above it and stays | | | | Or we could just go up for a year from here and |
| above it for more than six weeks then you are | | | | then start a new bear market in a double dip |
| beginning a bull market during which the moving | | | | recession as interest rates go up back up. |
| average will become support. | | | | Truth is you really cannot predict those kinds of |
| This is exactly what we have seen happen in the | | | | things. All you can do is invest along with the overall |
| past few weeks. At the March lows I thought the | | | | trend of the market and adapt when it is clear that |
| market was oversold and we were going to get a | | | | the overall trend has changed. You don't need to get |
| bear market rally that would eventually fizzle out and | | | | in or out at exact tops. If you got out of the bear |
| lead to new lows. Since you want to stay aligned | | | | market in December of 2007 you would have saved |
| with the big trend to make money and I thought | | | | yourself a lot of money. And the same thing is true |
| that was still down I tried to short several times only | | | | here, even though I didn't go long in March on the |
| to get stopped out. I also had no fear of being | | | | bottom by adapting to what the market is saying - |
| wrong about the market in the sense of "missing | | | | and is making clear to us - we can still make a lot of |
| out" on a rally, because I know that in a bull market | | | | money for at least the next year by going long in |
| the big money is made in individual sectors and | | | | individual stocks poised to outperform the stock |
| stocks and not the market averages. | | | | market. Some of them will go up huge. |
| When it came to them what I saw by June were | | | | So this is now an exciting time in the stock market |
| lots of sectors that looked like they may have | | | | and should be a lot more fun than the past year and |
| bottomed, but were just going to go sideways for | | | | a half. Even though I personally made a lot of money |
| the next several months if that were the case | | | | last year it is much easier to make money in a bull |
| anyway. If the market were really bullish they would | | | | market in stocks than shorting or market timing. |