Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Stock Market Overly Bullish Stance Typical at New Market Starts

Stock-Markets / Stock Index Trading Oct 12, 2009 - 03:50 AM GMT

By: Donald_W_Dony

Stock-Markets

Best Financial Markets Analysis ArticleThe four markets; currencies, bonds, commodities and stocks, are continuing to respond in an arena of mixed emotions. Bond prices have firm support from traders fearing deflationary pressures are coming and also a longer-term stock market correction. Gold bugs are on the other side. They are convinced that rapid inflationary concerns are developing due to the steady deterioration of the US Dollar.


The precious metal, in response, recently printed new all-time highs north of $1050 per ounce. Currency traders, who once supported the $USD as a flight-to-safety play, are presently shunning the greenback for worry of prolonged devaluation and are moving toward natural resource-driven currencies. These economies (Australia, Canada and Brazil) are viewed as the first countries to start raising their interest rates.

However, for most investors, it is the actions of the stock market that is of prime interest. Valuations (P/E multiples), which are normally not the best timing gauge, remain in the overvalued levels at trailing earnings of 27x. The historic average is closer to 16x. Stocks have forged ahead, since early 2009, in a overly bullish stance with over 90% now trading above their 200-day moving average and in strong technical up trends.

The 200-day moving average is a standard measuring tool for money managers to decide the primary trend of stocks.

This grossly over bullish number has caught the interest of many investors and suggested a high degree of caution is warranted (Chart 1). Yet in reviewing pass performance numbers, equities often remain in these lofty levels far longer than many investors or analysts realize. For example, during the first year of the last bull market (2003), over 80% of stocks on the NYSE Composite firmly held onto their strong bullish trend. It was not until the second year (2004) when some of the 'froth' blow off and the Big Board shifted out of an overly bullish range (80% or higher) and drifted down to a more sustainable bullish zone where only 50% to 80% of equities are in an up trend (trading over their 200-day moving average).

Current performance from the S&P 500 supports this sustained growth spurt (Chart 2). Since the low in March, the two corrections (early July and the expected trough in late October) have been limited with less than 10% corrections. Markets have remained in a very bullish undertone with any sell-offs restricted to shallow and short-term movements.

Bottom line: The present over valued equity markets does represent a challenge for investors on a fundamental basis. Historical performance in similar market conditions (bull market starts) do not always conclude in longer-term sell-offs but rather pauses (consolidations) to allow the fundamentals to eventually catch-up to the technicals.

Data from the bull market crest in 1999 to 2001 indicate equally high valuations as in 2009 but a much lower number of stocks participating in an up trend. Declining market momentum began to appear in late 1999 almost 12 months before the roll over and start of the severe 2000-2002 bear market. The current bullish participation of the NYSE Composite (90%) is more reminiscent of past fledgling bull markets rather than the beginning of market tops.

Investment approach: Valuation analysis should not be ignored and close monitoring of the current levels are still recommended. However, history shows that technical data normally leads the fundamentals. This is because the market is always looking forward and anticipating future events. The present position of many technically-driven indicators illustrate a bullish outlook for the near term. Models point to a coming low in late October to early November and another potentially in March 2010. This first trough, which is expected within fours weeks, illustrates the ongoing upward pressure that can be associated with new bull markets.

The next low in March will represent the first anniversary of the bull market and the probability of the start of less exuberant conditions. Historical data suggest that the overly bullish market stance, on average, lasts only about 3 to 4 quarters. Markets then shift into a more sustainable growth range of 50% to 80%.

More research is available in the October newsletter. Go to www.technicalspeculator.com and click on member login.

Your comments are always welcomed.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2009 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

Donald W. Dony Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules