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Stocks Bull Market Destroys the Crash Bears Again

Stock-Markets / Stock Index Trading Nov 10, 2009 - 12:28 AM GMT

By: Nadeem_Walayat

Stock-Markets

Best Financial Markets Analysis ArticleSeems like Déjà vu where virtually on every correction the mega perma-bears re-emerge to pronounce the demise of the bear market rally only to be beaten back down by the subsequent rally to a new high for the move as we witnessed today with the Dow closing above the previous mid October peak of 10,120, by closing at 10,226.


Current Price Action

First let me quickly cover today's (9th Nov) price action. My recent analysis as of Dow 9,712 concluded with the Dow targeting 10,350 to 10,500 during December 09. Today's price action clearly puts the Dow ahead of projected path as illustrated by the graph, but no I am not going to contemplate revising the target even if it is soon breached. Therefore my reaction to the rally is seek to distribute into it earlier (time wise) in the target price range i.e. bank profits! My next in depth analysis and conclusion on what follows after the current bull market swing peak into 2010, will be in December.

Bears Crushed Again

October was no ordinary month for the reality of the matter is that most widely read analysts have seen this rally as a bear market rally that was expected to resolve to a move back to and in some cases below the March low of 6470.

As the stealth bull market has gathered space, so has it ironically accumulated more bears pronouncing its imminent demise on every correction. The last correction of October 2009 being the most significant to date as it carried the most overwhelming bearish conclusions emanating from right at the top of the analyst food chain.

What does this suggest ?

It suggests that independent thought is limited, it appears to me a lot of the analysis on the web which like a pandemic virus can be traced back to a small source from which it is regurgitated around the world by analysts based on the conclusions of a few media mega-bears.

For instance every time Dr Doom Nouriel Roubini talks about stocks falling it gets regurgitated as fact across the media and internet. My recent analysis concluded with the following chart following his latest call for a 10% to 20% drop -

The problem with the mega perma-bears that re-emerge on each correction is that they do not have the ability to recognise when they are wrong so the purpose of analysis cannot be towards the management of actual positions that are subject to money management.

The Bear Market Rally

Another trick pulled out of the hat is to 'pretend' that the whole rally to date has been accurately called as a bear market rally, however the whole notion of a bear market rally is that it's end is always imminent on each correction. However as I pointed out in early April, one cannot monetize on a trend that one is skeptical of. Without conviction of a high probability of success there IS NO TRADE ! NO INVESTMENT, NO DECISION, JUST NOISE.

On each correction repeatedly presented is the argument that the "bear market rally" and the illusion that the preceding trend had been called all along.

On the other hand for someone that recognised the rally as a BULL Market, the opposite is the case, where every correction is viewed as a potential accumulation opportunity, the problem exists that one does NOT know how far the correction will run, neither does one know how far the subsequent rally will rally, all one knows is that THERE is a high probability for a rally to a new high. Therefore best guesses are given to the degree of the correction and the size of the subsequent impulse wave. How accurate the calls are on pinpointing turning points in advance is more or less comes down to a mixture of skill and luck, one may get some calls spot on but others will be missed by good %. However the key point remains in that ONE IS ACCUMULATING during the correction WITH-IN the bull market whereas THIS IS NOT POSSIBLE WITHIN A BEAR MARKET RALLY SCENERIO, where the termination point is always imminent therefore those that allude to a bear market rally have NO chance of profiting from it as THEY are always trying to pinpoint turning points AGAINST the trend.

Fundamental Reasons ?

The key problem with many analysts is that they think too much, they get carried away by looking for fundamental reasons to explain what the market will do next. However the problem here is that the reasons at any particular point in time can only really be used to explain what the market has ALREADY DONE, and NOT what the market is going to do next. Which is why fundamentals are a red herring that repeatedly sucker in highly publicised analysts into constructing mega-scenerios that whilst immensely convincing , however in reality are near totally worthless when it comes to ACTUALLY participating on the profitable side of the unraveling trend.

Today's 'red-herring' is the debate surrounding that of a 'V' shape or 'U' shaped economic recovery i.e. 'V' shaped would give is the present bull marker whereas a 'U' shaped implies a bear market rally, in either case a complete and utter waste of time that would be better spent focusing on the market! Just remember this - The Fundamentals FOLLOW the market, NOT LEAD! Therefore those that continue to use fundamentals to attempt to forecast stocks and other markets will near always be found chasing their tails, eventually de-evolving into commentators that are always looking in the rear view mirror to explain what has already transpired and even then the explanation will probably be WRONG i.e. just a best fit of trying to make sense as there are a near infinite number of fundemental indicators to pick and choose between to explain all scenerio's and outcomes.

The market will do what it wants to do, you either go with the market or you lose money, analysts building mega fundamental scenario's in the air just confuse ordinary investors into indecision or the WRONG action / in-action.

More thoughts on Trading and Analysis

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 400 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

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Michael Clarke
10 Nov 09, 12:13
Stocks Bull Market Destroys the Crash Bears Again

Interesting article. But I was wondering whether you were saying that the UK/US problems are over - and that the respective action taken in both the UK and US have solved all of the problems?

I was also wondering what about the underlying problems of money supply, I mean the creation of successive asset bubbles to maintain the equlibrium - can it continue for ever?

Many thanks,

Michael


Nadeem_Walayat
10 Nov 09, 12:52
Market Trends

Hi

My primary focus is in identifying high probability trends to profit from i.e. to arrive at a FIRM tradeable / investable conclusion.

As you can see, if one factors fundementals into the equation then things get confusing.

As ever the fundementals will be reflected in the price, its just that the fundementals that you think are driving stocks WILL NOT BE THE TRUE REASON of why stocks are rising.

Sticking to technicals I will however mention the general index growth spiral as a good long-term driver i.e. the stock indices dump dieing corporations for new growing corporations hence an inevitabel growth spiral for general indices (not sectors), hence why Dow went to a new high in 2007 whilst all the perma-bears said it could not then out comes some garbage to say the new high is not really a new high if we say price it in crude or gold or even tulips or banana's

A new high IS a new high which negates the preceding scenerio, without recognising when one is wrong all one is doing is talking BS.


Michael Clarke
10 Nov 09, 15:43
Stocks Bull Market Destroys the Crash Bears Again

Thanks for the reply. I was interested in your statement:-

''A new high IS a new high which negates the preceding scenerio, without recognising when one is wrong all one is doing is talking BS.''

What is of interest to me, though, is what is behind the 'high'. I mean - in the UK - there simply isn't any wealth creation, to speak of; there is a serious inbalance in imports and exports; the public finances are in a shocking state....and getting worse, yet house prices seem to be rising and so is the FTSE.

I think this is what is confusing the bears....they aren't seeeing wealth creation at the level that would support the kinds of rises that we have seen. It simply doesn't add up. Surely, the fundamentals must soon assert themselves? Am I dreaming, has gravity been switched off? Or is it just a speculative bubble, with QE money behind it?


Nadeem_Walayat
10 Nov 09, 15:57
Money Flood

Hi

Sorry, being immersed in the markets, I take many things for granted and forget that it may not be obvious to others.

The Obvious thing is that there is a FLOOD of money of which QE is part of with ZERO interest rates and unprecidented peace time deficit spending.

ZERO interest rates forces people to speculate, take risks as they can borrow for nothing.

QE functions in an fractional reserve banking system that can multiply the impact of the money printed by anywhere from X8 to X30 depending on how much of it triggers credit creation.

Deficit spending of near £200 billion a year speaks for itself as it pumps money into the economy for consumption.

All are inflating stock prices / commodities and eventually will show up in inflation.

I mentioned the above as possible fundemental explanations back in mid March.

Best

NW


Joel Thelen
10 Nov 09, 18:22
Index choice

Love your articles!

Just curious, why do you use the DJIA instead of the S&P500 for forecasting US stocks?


Nadeem_Walayat
10 Nov 09, 20:54
Trading the Dow

Hi

I analyse the Dow instead of other indices because I have been trading this index for approx 25 years.

http://www.marketoracle.co.uk/Article2499.html

Best.

NW.


Mike Stathis
13 Nov 09, 15:53
Must be Hard to See Clearly When you are Faced with Daily Smoke Screens

Good job Nadeem. Although I felt the rally up to the mid-10,000s was obvious in by the summer, it must be hard to see the light when you are bombared daily with these repitious, fictional, propaganda articles written by extremist gold bugs.

However, the fact that you saw it might say something about your views of much of the content here. I'd say it's gotten out of hand; too many rookies with an Internet connection posing as financial professionals. Al of them rehashing the same doom, preaching myths they hear from their heros - the doomers who have media exposure.

In the end, I don't see much financial creativity or insight online. 99.999% of all authors are lost. They are followers. They follow their heros on TV...the extremists..the guys with no credibility. It's a shame viewers don't realize this. That's why making money has never been easier for me.

Oh well, if viewers don't take the time to research who they are and aren't intelligent enough to see things, I suppose its ultimately their fault.

Roubini, Schiff and the other media hams are best used as contrarian indicators. Weiss is probably the best contrarian indicator in history, as his performance reveals (lol).

I myself called Dow 10,500 in July in my newsletter (when the Dow was ~8500).I reaffirmed this in August (Dow 9200) and cautioned against a slight downward revision (Dow 10,200) for the 2009 Dow high once the market soared in early Sept...unless we saw a correction. We may have had that needed correction when the Dow went to 9500, but that doesn't matter. There is not much upside now and a good deal of downside for 2010.

Ever since I issued my market buy signal (released in to public domain) at 6500 Dow, I have kept my clients and subscribers in the market....until recently. It's time to take profits and go home for the holidays and return back in 2010.

Despite what everyone else says (i.e. everyone refers to the clowns you hear and read in the media, who are clueless), The Dow is the SINGLE-BEST market indicator for various reasons which I do not have time to get into. I rarely pay attention to the S&P 500.

As far as Roubini, of course he is a joke. He is one of the worst forecasters ever (other than Larry Kudlow and Jim Cramer).

You should also talk about how Peter Schiff was screaming the Dow would go much much lower when it hit 6400, and missed this fabulous run. That is what you get from extremists and salesmen, whose only purpose is to sell to YOU. You NEVER get valuable insight. That is precisely why they are in the media - because they add no real value, and hence ultimately steer the sheep back towards the Wall Street crowd, using Roubini and Schiff as their only examples of those opposing the perma-bull market crowd.

This is quite unfortunate for Main Street because there are many people 1000s of times more credible and more accurate than these guys. But you won't ever seee or hear from them because the media won't allow it. Why? Because the media makes money selling commerials to the financial industry. Remember, it's a zero-sum game.

If the media actually aired real experts with proven track records, their financial sponsors (Wall Street) wouldn't be able to take your money as easily as it always does. Figure it out folks.

And by watching and reading the media, you are further empowering them (since views and website hits determine ad revenues), which means you are ultimately responisble for your future losses.

Similar to the anger at the banks, stop complaining and move your moneyto a credit union. If you are upset that CNBC, FBN, Bloomberg, CNN etc. air only hacks, extremists and morons - none of which will ever halp you make money, simply STOP WATCHING, STOP READING.

If everyone does this, they will cease to exist or else have to start serving the interests of their audience instead of their advertisers.


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