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Riding the Stocks Stealth Bull Market Without Falling Off

Stock-Markets / Financial Markets 2010 Mar 07, 2010 - 08:24 PM GMT

By: Nadeem_Walayat

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleWhilst the mainstream press and financial blogosphere obsesses over doom and gloom as a consequence of the sovereign debt default scenario, the stock market continues to show underlying strength with a strong late week rally that pushed the Dow to a close of 10,562, far above the preceding swing high of 10,438. Clearly where the stock market is concerned the sovereign debt crisis talk is just background noise that continues to keep the scared money away from investing, just as has been the case for the past 12 months where every correction breeds panic Sell commentary.


Which is great for a stocks stealth bull market, the longer scared investors are kept in perpetual state of fear, the greater will be the bull run. How far could the stock market run ? The stock market forecast for 2010 targets 12,500 this year, and continues to allude to a multi-year bull run, as per my original conclusion of mid March 2009.

UK Election Date Announcement Imminent

Gordon Brown will soon announce that the election will be on May the 6th. With so much bad news on the economy, political sleaze and corruption ahead of this election, it is relatively easy to get carried away with gloom and doom. However on the brightside, the sooner the country is able to get the pain of deep government spending cuts out of the way the better the prospects for future sustainable economic growth.

Greece vs Germany

Meanwhile the Greeks want the rest of Europe though predominantly the Germans to finance their lifestyle with what would turn out to be perpetual annual bailouts or a Greek tax on European tax payers, the response from the Germans has been to advise Greece to sell off some of its islands. Grew threw one back at the Germans by wanting the Gold back that Nazi's stole during World War 2.

The Inflation Mega-trend Ebook (FREE Download NOW) stated that the governments are going to inflate their way out of the crisis therefore investors must seek to protect their wealth from the unfolding inflation mega-trend.

Where Greece is concerned, then yes it cannot devalue as part of the Euro, but the solution is to devalue the whole EURO block and then funnel cash internally to weaker economies which ultimately means a German cash bailout for Greece.

However the pain is and will be real for most people as governments cut public spending which they have to because it is mostly non productive waste of money and a burden on the economy, the greater the size of the public sector the greater the noose around the economy, which is why the U.S. is expected to outperform Europe's economy given that the U.S. public sector still remains small as a % of GDP when compared to the monster bureaucracy of Europe. The UK needs to turn the clock back 10 years to pre Labour days in terms of the size of the public sector as a % of GDP, i.e. to about 35% of GDP instead of the present approx 52%. More on how the economy can be saved in the Inflation Mega-trend Ebook (Free Download).

Iceland Defaults on Debts to British Savers

Despite the Icelandic government stating several times over the past 12 months that it would honour its agreement to repay the cost of bailing out British savers in Icelandic banks, Icelanders have now said NO (though I don't blame them) to repaying the £2.3 billion borrowed mostly from ordinary British savers who were hoodwinked by unscrupulous Icelandic bankster's into depositing their had earned life savings into Icelandic bank deposit accounts.

The British tax payers were forced to cover these deposits to prevent a chain reaction banking system collapse. Now some 18 months on, the Icelandic government is ever more vocally playing the victim card after having effected what amounts to financial terrorism onto British savers. It's going to be several decades before any saver will trust a single penny to an Icelandic financial institution.

The Icelanders should be liquidating the assets of their bankster elite and corrupt politicians, though as is the case elsewhere, there have been no consequences for the fraud, just inept gullible corrupt governments handing out more tax payer cash as bonuses.

British Pound Tumbles Below £/$1.50 Before Bouncing

Sterling trend is inline with expectations as illustrated by the below forecast graph.

Sterling continues to target a low of between £/$1.37 to £/$1.40 ahead of the May general election, this weeks analysis accurately concluded in an interim bounce off of the low of £/$1.49 that targets £/$1.52 to 53 (02 Mar 2010 - Election Risks, Debt and Inflation Push British Pound Below £/$1.50 Towards £/$1.40 Target ),with GBP currently standing at £/$1.5130 so has a little further to run higher in the short-term . There also exists a a risk of a meltdown below the £/$1.37 support, which would definitely further stoke the already brightly burning inflation fires.

IMF Tells Governments to Inflate or Die

The IMF suggests the obvious after inflation has already risen in the UK to 3.5%, that inflation targets need to double from 2% to 4% to allow governments to inflate their way out of debt. This is one of the driving forces for the inflation mega-trend that is covered in depth in The Inflation Mega-Trend ebook (Free Download), but basically, higher inflation = higher nominal interest rates = lower real interest rates - I.e. a high inflation policy would mean even more theft of value of savings and earnings by reckless governments which amounts to a higher stealth tax on workers and savers. People, listen, you seriously need to protect yourself from the governments and their proxy institutions such as the IMF that are going to attempt to systematically steal the value of your hard earned savings - The FREE Inflation mega-trend ebook contains some 50 pages of analysis plus another 50 pages of how to protect and profit form the inflation mega-trend.

Yes, the governments WILL inflate because they have no choice, but you do have a choice in how you protect your wealth! Because what the fools (IMF) are proposing risks sparking a wage price spiral towards inflation rates far beyond anything experienced during the past 10 years. Who is going to trust a government that doubles the target rate of inflation from 2% to 4%, what's next ? 8% ? 16% ? The IMF is populated with ivory tower academic economist FOOLS that do not have a clue what they are talking about, but instead wield the levers of powers, no wonder the worlds economies lurch from crisis to crisis.

The Stock Market

Last weeks analysis concluded in a forecast graph that targeted an early week rally from 10,325 to 10,415 to make a lower high that targeted a C Wave correction to form a double or higher bottom in the zone of between 9,800 and 10,150 by the end of NEXT week so as to fully correct the bull market trend i.e. embolden and accumulate more bears before sending them reeling into the stratosphere.

The actual trend saw the rally break above 10,415 and then range trade between 10,450 to 10,400 before the strong Friday rally.

Stock Market 2010 Trend

Whilst we diverge in short-term intra-week trends, readers need to keep one thing absolutely clear, and something I iterate in every stocks article, that we have been in a stocks stealth bull market since March 2009 (15 Mar 2009 - Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470 ), where the operate strategy is for investors is to ACCUMULATE on corrections. The further the market deviates from the high the greater the buying opportunity presented as I cover in length in the Inflation Mega-trend ebook (Download now if you have not already done so).

Stocks Stealth Bull Market Trend Forecast For 2010

Dow 10,067 - Stocks Multi-year Bull Market that bottomed in March 2009 will trend Sideways during first half of 2010 attempting to break higher. The second half will see a strong rally to above 12,000 targeting 12,500 during late 2010.

DOW Stock Market Forecast 2010

Dow Current Quick Technical Picture

Elliott Wave Pattern - Last weeks analysis (28th Feb) concluded in an ABC-ABC-ABC pattern, this is how the market trend is unfolding, which is therefore suggestive of a downtrend to manifest itself early this week to complete the C wave which usually targets a break of Wave A. The alternative view is that A marked the end of the correction and therefore we are in a new bull run that will carry stocks far beyond the bull market peak of 10,729.

TIME - The bull market anniversary is here and stocks are rallying, the preceding short-term scenario was built around a trend lower through the 5th-8th and into the end of next week.

SWINGS - The Impulse swings are powerful and quick in both directions, there is little to suggest that the volatile sideways trend scenario is no longer valid, this would support the view of a series of strong down swings.

MACD - Is pretty much neutral, which given that the current trend is up, therefore supportive of the current rally.

BULL / BEAR PSYCHOLOGY - It would have been better for a breakout to the upside to come from allowing the bears to gain more influence, was the 3 day trend between 10,450 and 10,400 enough ? I don't think so. The impact of the trend this week was to stop out bears which sent the stock market to well above 10,500. Has the market enough momentum to break the preceding high ? Not clear. Though you can imagine if a die hard bull is unsure of the immediate trend outlook then what must the bears be going through?

Conclusion

Short-term trend is not clear as there are clear bullish breakout signals and bearish technical patterns, we are in a volatile sideways trend which should ultimately resolve in a strong bull run higher towards a target of 12,500. However, I won't just leave it at that but conclude with the following short-term outlook - The Dow closed at 10,566, the immediate trend is strong so supports an early week continuation higher, it will be interesting to see the quality of this rally, i.e. how high it goes, can it break the previous peak so soon ? Okay, I am going to conclude in an early week reversal lower to target a downtrend into the 10,200 to 10,000 zone. At this point I would attach a 60% probability to this short-term forecast.

Gold Quick Update

This week we saw gold break above the last high of 1,130 which is very bullish, this confirms that the correction from the 1225 high was an ABC corrective pattern that ended at the precise forecast target of 1,050. Gold now has strong support under it between 1,075 and 1,125, a solid base for an advance to new all time highs now probably sooner than originally forecast as per the graph below.

Gold Analysis and Price Trend Forecast For 2010

The Inflation mega-trend is manifesting itself in commodities, not only is Gold acting strongly but so are other commodities such as crude oil trading above $80, this is COMPRESSING the inflation trend, i.e. which means we get much higher inflation and far sooner than anyone expects! Meanwhile there still persists the mantra of debt deleveraging deflation, so I remind you of a warning I gave in November 2009 regarding the deflation argument (Deflationists Are WRONG, Prepare for the INFLATION Mega-Trend)

The warning of November 2008 of the worst case scenario of Hyperinflation has not only NOT diminished over the past 12 months, but it has been greatly reinforced, where 2010 looks set to the year of INFLATION NOT DEFLATION and 2011 may be Far worse as the Deflationists lose every penny they own and hold in Government Bonds that they so vocally now profess to pile into!

After the deflationary correction of 2008 we are about to witness the INFLATIONARY MEGA-TREND of the NEXT DECADE! the consequences of which are many.

Source and Comments here - http://www.marketoracle.co.uk/Article17732.html

Your inflation mega-trend investing analyst.

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

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Comments

Ceremory
08 Mar 10, 02:20
Dow trend

Hi Nadeem,

I follow up your analyses closely. I was thinking this rally started from 9800s was the B wave after the abc of A, the way down from 10.700s. And there had to be a C down.

On the other hand, you were also saying that there would be a second leg down and its preparing for a DOUBLE BOTTOM before its ready to resume upward trend. And it would be around 5-8th March. You also talked about the bears accumulating as the market was prepating for an upward push.

And what he had on Friday was a strong upward move. So its late to ride the market now for the ones waiting for a down.

Would you please share your latest comment on your double bottom view and the latest surge on the previously bearish move expected days of 5-8 March?

thanks


Nadeem_Walayat
08 Mar 10, 02:40
Dow Short-term
Last weekends forecast trend conclusion is illustrated by the graph.



The early week swing up broke above 10,438 and negated the weak minor c wave rally scenerio / stronger wave C decline.

The sideways trend mostly between 10,400 and 10,450 did not give any clear signals either way until Fridays break higher.

Now the Dow is targetting an early week rally, which I give a 60% probability of resolving in a downtrend towards a target of 10,200 to 10,000 by the end of the this week, which is inline with last weeks timing.

Short-term trading, I would be looking to reverse to short on a sell signal off of this rally that has YET to terminate. How high ? I don't know but I would guestimate at about 10,625. Though don't take this as any sort of rec to short as Short-term trading is high risk which requires discipline to wait for triggers, soemthing I will cover in a future ebook.

Investing - All corrections are for accumulating bull market positions.
Paul
08 Mar 10, 23:30
A Newcomer To The Table?
Nadeem

I thought this might put a wry smile on your face. The main theme of this suggests at least one other commentator is, very tentatively, beginning to wake up and smell the coffee. Perhaps he even downloaded your ebook......??? ;)

Appreciate your tireless input over the years.

Best

Paul --------------------------

Puru Saxena
Posted Mar 8, 2010
http://www.321gold.com/editorials/saxena/saxena030810.html


jennifer Heaven
09 Mar 10, 02:39
UK Sterling

Dear Mr Walayat

Many thanks again for such clarity!

I wonder if you would be good enough to offer a riposte to Mr Nielsen at Goldman Sachs who seems to have a diametrically opposed view of UK Sterling!

I have followed you for some years and I am amazed at your foresight so when I read this....I just had to ask you what you thought of it.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a.8MPhWwBxyw&pos=12

I am very grateful for any cold water you can throw on it!

Jennifer


Nadeem_Walayat
09 Mar 10, 18:42
UK Economy / Sterling

Hi

My analysis of December 2009, that is contained in the Ebook concludes that the UK Economy will grow more strongly than many today imagine, and sterling will trend higher against a weaker euro.

The current trend is targeting a break below £/$1.40, after which I expect sterling to rally towards the upper end of the range to about 1.55. It should stay within the range unless there is a catastrophic event.

Apart from their $1.73 target, which I don't see, there analysis is not far from my scenerio of the past 2-3 months.

Best.

NW


Robert
10 Mar 10, 16:50
Eliott Wave

Although you are a disciple of the EW, your views seem different then our reverent KING Robert Pretcher. Wondering why?


Nadeem_Walayat
10 Mar 10, 16:51
EW

I stopped being a disciple of EW around 1992, its just another tool to either include or ignore in the final conclusion depending on the sum of the whole.


Bill Mohl
10 Mar 10, 22:16
Gold

Your gold update is way off! We'll see approx. 600 in the next 3 to 8 months!! Bill


Nadeem_Walayat
10 Mar 10, 22:18
Gold

I only have 2.5% of my wealth in gold & silver, IF it fell to $600 then I would increase this to about 6%

NW


Angela
11 Mar 10, 10:35
asset allocation for inflation mega-trend

2.5% gold and silver at present price!

Please could you share with us the percentages you allocate to other asset classes/sectors?

Thank you Nadeem

AV


Nadeem_Walayat
11 Mar 10, 11:57
Portfolio

My portfolio breakdown ?

Cash deposits various currencies - 15%

Fixed Interest Bonds (not floating) 50%

Index linked Gilts 5%

Stocks 20% (25% is maximum risk)

Commodities 10%

No property (pending conclusion of next ebook)

No Bonds (floating)


Angela
12 Mar 10, 02:19
portfolio for inflation mega trend

Many thanks Nadeem for your portfolio breakdown.

Valuable and informative analyses and forecasts for stocks, commodities etc., put into context of total investment strategy at this time most helpful.

Your portfolio breakdown percentages as they change over time would be very welcome! - an occasional newsletter on the subject if you have time, or in your next ebook.

Best wishes to you and yours

AV


Craig Fisher
12 Mar 10, 10:46
Bonds & Cash

Why do you have 70% invested in bonds and cash if you expect inflation ?


Nadeem_Walayat
12 Mar 10, 11:08
Risk Profile
Stocks and commodities are high risk, I'm not going to go much over 1/3rd portfolio exposure to these no matter how bullish I am.

The cash in Fixed bonds will eventually translate into property, I fixed for 2 - 3 years at rates of between 6.5% and 7.3% between July and Oct 08, a chunk of which is in tax free ISA's and TESSA's across two persons.

http://www.marketoracle.co.uk/Article6675.html


Younger people with smaller portfolios can probably cater for a more risk profile i.e. more in stocks & commodities, it basically comes down to what is your own personal risk profile. I.e. how long you want to invest for and for what purpose.

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