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The Crumbliest Flakiest Stocks Bull Market Never Tasted Before

Stock-Markets / Stock Index Trading Sep 07, 2009 - 03:46 PM GMT

By: Nadeem_Walayat

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleThe $17 billion hostile bid for Cadbury 'should' bring home the inherent underlying actual strength of this bull market as the bid signals that business is returning to normal. Today's bid by Kraft Foods sent the Cadbury stock price soaring by more than 38% and clearly illustrates that multinationals are increasingly awakening from credit crisis fear to taste greed at being able to pick up corporate giants such as Cadbury at rock bottom recession prices even after a 38% one day price hike. Watch this space for many more mega bids to come as the bull market momentum continues to gather steam as we have a long, long way to go before we reach the Merger and Acquisition mania levels associated with BULL market Peaks.


Meanwhile bull market deniers in the face of overwhelming evidence of a bottom i.e. as evidenced by the price trend continue to cling on to literally anything that leaves the door ajar towards revisiting the March lows and below. Even resorting to delving back into the midst of time to the 1930's for any glimmer of hope. It should be obvious by now to everyone that transposing current price action onto a graph of the 1930's bear market makes it rather obvious that THAT is NOT going to happen?

One of my fundamental rules of analysis is that the further one deviates from the present the more probable that one is going to be wrong, and the 1930's is more than just a deviation, at most I would go back perhaps a year to look for relative strength and weakness. But nearly 90 years? That era is long gone and buried and bears NO significance to the PRESENT! Yes we have echo's through time, but NOT THAT FAR BACK ! For actual market impact events on to today's markets one needs to look at the peak in the housing markets and credit crisis events of the past 2 years where the three most notable events were -

a. The Lehman's sparked Financial collapse of Sept / October 2008

b. Zero Interest rates.

c. the implementation of Quantitative Easing.

They are the most important echo's from the recent past impacting on the present, rather than trying to match a chart from the 1930's to the present.

Is this a Bull Market or a Bear Market Rally?

My point of view is simple (it is good to keep it simple)- Pick up any reputable technical analysis book and you will read that that a bull market in stocks is confirmed when an major stock indices (that's the DJIA) rallies by 20% from the low (allowing for a few days of whipsaw), similarly a bear market is confirmed when an stock indices falls by 20% from the high , therefore regardless of perma views of this being a bear market rally, the facts are clear that under the basis of technical analysis this rally has long since been confirmed as a bull market more than 30% ago!

The Rules exist for a reason and that is for the investor / trader to recognise when they are WRONG ! Okay for several reasons, another is to arrive at a FIRM TRADEABLE CONCLUSION.

However, the answer is NOT to change the rules ! But to change your opinion ! Being stubborn in the face of the trend is the sure fire way towards financial oblivion!. Yes those that clutch to perma views will soon eventually have an opportunity to crow loudly, but the bottom line is to monetize on analysis through means of investing and trading and in that regard making say 15% on a plunge is pretty much meaningless against a 50% loss on the preceding rally. For me, the bull market remains in tact as long as the DJIA steers clear of 20%+ declines, for if such a decline occur then that is the market telling me what it wants to do rather than me telling the market what it should do!

Stocks Bull Market Trend Update

The stocks bull market continues to resolve towards the pattern I painted some 7 weeks ago - Vicious Stocks Stealth Bull Market Eats the Bears Alive!, What's Next?

CONCLUSION - My earlier fears about a bull trap appear to be unfounded, the stock chart is talking that we are in a stocks bull market, and is suggestive of a trend higher towards a 2009 target of between 9750 and 10,000, with a high probability that we may get there before the end of October!. Key danger areas for this scenario are a. for the trend line to contain corrections, and b. that 8080, MUST HOLD.

The last update of 3 weeks ago (Stocks Stealth Bull Market Crushes Bears Hopes Again) showed the trend resolving towards an earlier peak given the strength of wave 1 which implied a weaker waves 3 and 5.

The Price action to date has shown relative strength against the forecast of a month ago, this suggests a higher target than the original 9750 to 10K before the end of Oct 2009, the secondary stated target was 10,450. However it also suggests that the market may put in an earlier peak. I am still leaning towards the next correction AFTER the peak to be of greater significance than the last correction from June to July. Also, whilst my in depth economic analysis is on the UK economy, however much of the conclusions could equally be applied to other western economies, the analysis of February 2009 has been projecting towards a a DOUBLE DIP recession (updated June 09) which has negative implications for stocks during 2010, but for now DON'T be silly, don't fight the stocks bull market (time to drop the word stealth).

Subsequent price action has continued to imply a scenario that resolves towards a 5 wave pattern, though this is now far too easy to interpret which therefore suggests a more complex pattern. The velocity of the uptrend is also in line with the original projection of 22nd July as indicated by the Blue Arrow, which continues to resolve towards a target juncture date of late September 2009.

The target for the termination of the current phase of the bull market rally was between 9750 and 10,000. As mentioned above, I am not expecting an easy ride for the fifth wave as clearly it is an obvious pattern to interpret following waves 1,2,3,4. What does this mean ? Well wave 3 is screaming weakness, so that suggests a weak push higher rather than something that resembles wave 1.

The MACD is also signaling serious price weakness as there is clear divergence taking place between the rising trend and a falling MACD, very similar to the June peak.

Two possible outcomes -

a. That the fifth puts in a lower peak than the wave 3, which is significantly more bearish.

b. That we get some sideways drift (possible false break lower) before a sharp rally for a higher fifth into the target zone.

Despite the increasingly bearish technical indicators at this point I continue to march with the bull market and favour outcome b. ahead of a more serious correction that would first 1. target target the main support trendline and 2. 8900 Previous Peak.

Robert Prechter presents an alternative view for the 'bear' market in his latest 10 page newsletter, which can be downloaded for free here.

Trading Lesson From this Update - The further you deviate from the present in terms of analysis / trade scenario building, the greater the probability that you will be wrong and therefore MUST attach LESS importance to whatever you are looking at, particularly a chart of the Dow from the 1930's for EVEN IF it repeats it will be pure coincidence, as there CANNOT BE ANY ECHO from the events of that time into TODAY's Market ! You are much better served by practice reacting to price movements in real time then getting sidelined by historic events or fundamentals.

Very, very quick Gold update - Double Top? For my next in depth analysis of Gold subscribe to my always free newsletter.

Your stock index trading analyst.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 300 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

DJRB
09 Sep 09, 12:45
just a quick thought from your financial sense missive

from this: The Crumbliest Flakiest Stocks

Bull Market Never Tasted Before

particularly a chart of the Dow from the 1930's for EVEN IF it repeats it will be pure coincidence, as there CANNOT BE ANY ECHO from the events of that time into Today's Market !

so correct me if I get your thinking wrong but what you're saying here is human nature today is nothing like what it was in the 1930? ...even though our debt ratio is even worse now than then?

I'd like to remind you that most Americans are flat broke without the house ATM. I do not know one person NOT ONE, that didn't use the house ATM to support their NORMAL LIVING EXPENSES.

the market can go up all it wants, I'll play that for all it's worth but the longer it goes up the bigger the correction will be and I KNOW that cause, and to repeat....MOST AMERICANS ARE FLAT BROKE...spending is not coming back without massive new borrowings....but to be paid back by how?

just sayin.

DRJB out

p.s. and never mind the hundreds of trillions of derivatives, the fact that they changed the accounting rules to make banks profitable AND (last I checked) $5 trillion in off balance sheet level III assets still awaiting mark to market....or will they delay that again another year to keep this market in a bull....(bullshit if you ask me but what hell, the trend is your friend). damn, when you start listing all the head winds in this market it sure makes the head spin......


Nadeem_Walayat
09 Sep 09, 12:46
just a quick thought from your financial sense missive

Hi

You confirm my point of view, that recent events are far more important than transposing the current dow chart over that of the 1930's.

Look the further you deviate from the present then the more likely you are be wrong, i.e. greater probability of failure, those that obsess over the 1930's Dow chart as though its caste in stone are setting themselves up for a MEGA failure !

I am taking the bull market one swing at a time, looking for relative strength or weakness AGAINST projected patterns to determine where it will go next, the future is unwritten and to imply because events 80 years resulted in x,y,z means the same today is WRONG. better to focus on where we are heading in the present than where we went in the past.

Best

Nadeem Walayat,

Editor, The Market Oracle (http://www.marketoracle.co.uk)


DJRB
09 Sep 09, 12:46
just a quick thought from your financial sense missive

THOSE WHO IGNORE THE LESSONS OF THE PAST ARE DOOMED TO REPEAT THEM.

oops sorry for the caps.

just a quick reminder though, the isn't the 2nd debt collapse and the 1930's wasn't the first so......

I'm trying to get people to understand is that the market of the last ~25 years is fuggin over it's the demographics baby and all those boomers will be net sellers NOT buyers.

as a quick example I'd say 75% of the boomers i know in socal have on average 3 houses and just looking for the opertunity to sell them (to bad they did't take my advice in 05-06).....AND a full 50% of my younger friends are either still living at home or just waiting for the day they get the inheritance.

as long as you are saying the stock market can go up with a continued collapse in demand and the boomers unloading houses and equities than i guess my math is all messed up.

oh well,

DRJB out

p.s. this is the best bull market $13 trillion in new debt could buy!


Nadeem_Walayat
09 Sep 09, 12:47
Re: just a quick thought from your financial sense missive

>over it's the demographics baby and all those boomers will >be net sellers NOT buyers.

See yuor making a mega assumption and setting yourself up for a big fall!

THE FUTURE IS UNWRITTEN - By latching onto the above you are MAKING A BIG ERROR ! AS THE BOOMERS MAY OR MAY NOT SIGNIFICANTLY IMPACT ON THE MARKETS. To take it as caste in stone is a mistake you do not want to make !

Remember 1987 ? the final fifth ! IT WAS AN ABSOLUTE EVENT !!!! Then along came the greatest bull market of all time, leaving the perma bears like precther behind.

AGAIN THE FUTURE IS UNWRITTEN !

The market CAN GO UP, because it discounts MORE than demographics! There are events / data that ONLY becomes apparent in hindesight, therefore watch the price rather than theories about why something should happen

Best.

Nadeem Walayat,

Editor, The Market Oracle (http://www.marketoracle.co.uk)


James
17 Sep 09, 16:16
MACD

Nadeem

I would be interested in why you ignored the MACD divergence above ?

James.


Nadeem_Walayat
17 Sep 09, 19:20
Trading Stock Indices

Hi James

Because I trade the index and not the indicator, therefore my eye is always foremost on the price chart rather than on an indicator or a theory.

NW


onegoal
02 Oct 09, 19:22
contrary thinking

Nadeem. Great contrarian thinking and insights you are presenting here. I very much appreciate your viewpoints. In my opinion, a final panic selloff next week to 1005-1010 S&P to reload the bears and with their shorts and then a run up into earnings season which should give us a nice short covering / combined with panic buying (the train is leaving the station) by managed account money should provide the proper sentiment for a short term top (1120 - 1140 S&P) that will then provide the proper bullish sentiment to power a 20% Correction to 940-920 S&P level setting up the next great buying opp. Thanks again for sharing your thoughts and insights.


onegoal
02 Oct 09, 19:49
1005-1010 S&P

Nadeem. Great contrarian thinking and insights you are presenting here. I very much appreciate your viewpoints. In my opinion, a final panic selloff next week to 1005-1010 S&P to reload the bears and with their shorts and then a run up into earnings season which should give us a nice short covering / combined with panic buying (the train is leaving the station) by managed account money should provide the proper sentiment for a short term top (1120 - 1140 S&P) that will then provide the proper bullish sentiment to power a 20% Correction to 940-920 S&P level setting up the next great buying opp. Thanks again for sharing your thoughts and insights.


Nadeem_Walayat
03 Oct 09, 04:48
Stocks Bull market

Though don't forget that we are in a stocks bull market. So when I do analysis and arrive at and conclusion I have to skew my analysis in the favour of the bull market,


Sibeiho
03 Oct 09, 20:52
Waves Coming down

Hi Nadeem,

At this junction from your charts, can i confirm that we are on the 3 elliot waves which are coming down? If so would this have a large positive impact on the USdollar burning all the carry trades? Could the earnings season be pushing down the prices? And when you mentioned you skew in favour of the bull market with your analysis, therefore what you are saying is that the 9750 to 10000 is pretty optimistic for a top?

Appreciate your enlightenment here...


Nadeem_Walayat
04 Oct 09, 11:10
Dow / Dollar Update
The Stock markets continued to correct following the preceding weeks sell signals as confirmed in last weeks newsletter. The market has now given a ABC pattern which allows me to generate a trend channel within which I can trade more closely to the price, i.e. rather than leaving stops far distant due to the lack of price action as the below chart illustrates (more on trading, eventually at walayatstreet.com).

Courtesy of stockcharts.com

Dow / FTSE Targets

The trend remains inline with expectations for Dow / FTSE to experience a serious correction during October and therefore should continue to trade inside the down trend channel all the way towards the targets of FTSE 4,650 and Dow 9000, with now clearly determinable re-entry levels as well as much tighter stops.

Reasons for the rally ?

People are always interested in reasons for why markets must move in this or that direction, I have long since come to realise that the reasons are not important as the reasons only become clear in hind site AFTER the market has moved, Back in mid March the reason for stocks to keep falling were centred around falling corporate earnings expectations, as illustrated by John Mauldin's - Reality Bites :

Year-to-date through February 27, the S&P 500 was down 18.62 percent and the Dow Jones Industrial Average was down 19.52 percent. Moreover, strategists and investors are increasingly coming around to the conclusion that corporate earnings are going to be nothing short of horrendous this year and that stocks are headed even lower, as HCM has been arguing for months (without pleasure, we hasten to add). Very recently, three of the smartest forecasters on Wall Street sharply lowered their earnings forecasts for the S&P 500.

Which I said to ignore as the bear market had by then built up overwhelming bearish 'reasons' to reinforce the expectation of much lower prices, however all of this was irrelevant as it was OLD NEWS.

For more on what to do and not to do at market bottoms see - Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470

However, some of the reasons I gave back in mid March as to why stocks should rally have now AFTER the rally has occurred are put forward as an explanation.

A. The markets move ahead of the economy, whilst I don't profess to know the EXACT reasons of why they will move AHEAD until that becomes apparent AFTER the market has already moved, however I do have some reasoning in that INFLATION, Zero Interest Rates (Forcing savers / financial institutions to take risks) Quantitative Easing (money printing), and HUGE Fiscal stimulus packages that are laying all of the ground work for the next bubble regardless of how bad things appear as any outcome that prevents another Great Depression will be seen as bullish! i.e. even a low growth high inflation stagflationary environment WILL be seen as a positive outcome against the present day data that points to a collapse of global demand on a scale not seen since the Great Depression. The governments HAVE learned the lessons from the Great Depression and WILL succeed in inflating the asset prices and ignite the next perhaps even bigger bubble, meanwhile the stealth bull market will continue which by the time everyone realizes what's going on stocks will already by up by perhaps more than 50% from the low.

U.S. Dollar Bears Running Out of Time?

Despite the over whelming weight of bearish fundamentals that the dollar collapse proponents are eager to remind readers across the media, however one fact may have escaped this onslaught and that is the U.S. Dollar is NOT falling, the trend remains in line with my U.S. Dollar bull market analysis of Mid August 2009, that concluded that the U.S. Dollar targets a rally to USD 90 by the end of this year on the proviso that 75 is not breached on the downside which would negate the scenario. To date the Dollar has held support and continues to build a base, however at 77.25 the dollar is seriously lacking upside momentum so all is not 'yet' lost of the dollar crash proponents, despite the fact that we have listened to the same expectations for the past 18 months since the U.S. Dollar bottomed in March 2008, given the weak state of the current rally they may finally be proved right!

Today's Market Lesson - Do not THINK too MUCH !, Don't get lost in reasons of why the market must move, rather focus on what the market is doing on the price charts! AS you are trading the PRICE CHART and NOT the fundamental DATA! They can and DO move in OPPOSITE DIRECTIONS! Funnymentals are a RED HERRING that continue to sucker both the professionals and the inexperienced, whereas they should amount to no more than 10% to 20% of the your decision making process when trading rather than the over inflated 80% or more that many weight towards in depth Funnymentals studies into for instance corporate earnings forecasts.

Your swing trading analyst not too interested in what the funnymentals suggest.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 300 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

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