Stocks Bull Market Over? Are the Bears About to Break...even?

February 4, 2014

Bearish rhetoric is once more reaching extremes FOLLOWING the tumbling of stocks to new recent lows, a decline that many market commentators have once more latched onto as a consequence of Fed Tapering of QE or more accurately money printing, this despite the fact that the stocks soared in response to the last December Taper decision which was a surprise for the markets whilst the January Taper move was expected.

Whilst at the present time I remain firmly immersed in the analysis of the housing markets as I attempt to get my latest ebook in the exponential inflation mega-trend series completed this month, as I have plowed most of my wealth into the UK housing market since early 2012.

However, I do still retain a sizeable 18% of assets invested in the stock market, so like most out there it would be useful to know whether the current sell off is a buying opportunity or not or whether it is an harbinger of the dreaded trend change that I have yet to acknowledge as a termination of the bull market trend that I have backed for the past 5 years duration of this stocks stealth bull market that began in March 2009.

So first I refer to my last analysis of the stock market of mid November 2013 which laid out my expectations for the Dow over the following 4 months into early March 2014 as excerpted below -

I expect the Stock market to break above the upper channel of Dow 15,770 and be trading above 16,000 by late December. Furthermore my analysis suggests that despite a volatile January that will likely bring forward many bankrupt doom merchants, the stock market will likely continue its rally into March 2014, when it is highly probable that the Dow will be trading above 17,000!

Where does the stock market stand in its oscillation around the trend forecast?

The last close on the Dow was 15,699, which translates into a deviation from the forecast trend trajectory of 5.5%.

Does a 5.5% deviation lend me to panic as many are doing in their inevitable proclamations of a NEW bear market ?

NO, a 5.5% deviation does not even constitute a NORMAL correction, on its own it is another soon to be forgotten blip, just as was the one in October 2013, remember October ? Remember that blip that elicited intense bearish diatribe ?

The bottom line is this:  The US government shutdown is GREAT NEWS! because for bull markets to persist and continue they NEED BAD NEWS every few months, THEY NEED MOST PEOPLE TO BE SKEPTICAL, TOO AFRAID TO INVEST! And so it continues to be the case for the DURATION OF THIS BULL MARKET, where over 90%, NINTEY PERCENT OF Market commentators have been WRONG and continue to be WRONG, Everyone who has just proclaimed its END IS WRONG and Will BE CRUCIFIED, just as they have been crucified at every market turn for the past FIVE YEARS !



UNDERSTAND THIS - THIS stocks stealth bull market is one of the GREATEST bull markets in HISTORY!

For now I'll let the bears crow loudly despite the fact that THIS corrective price action was seasonally EXPECTED, for soon they will be silenced, wiped out, CRUCIFIED until they once more emerge at depths of the NEXT stock market correction.

Where do the Bears Break Even?

Every other month we get a correction like this and once more the bears dutifully emerge to proclaim that this time the bear market has definitely started, however soon to go into hibernation once more when the next rally to new highs gets underway. However the question readers need to ask themselves when they hear such commentaries is that after FIVE YEARS, at what point would the perma-bears break even ? Dow 10,000 ? 6000? 4000? Yeah as low as that!

Okay, that's the re-cap and rhetoric out of the way, now for the analysis:

DOW FORECAST - Current under oscillation of 5.5%, against earlier over oscillation of 4% is NOT abnormal. Oscillations can easily extend to 10% around the trend which currently extends to as low as Dow 15,000.

ELLIOTT WAVES - My unorthodox interpretation of EWT implies that a significant correction is under way as the rally from the October lows comprised three distinct waves which implies it was corrective and also implies that as a worse case scenario the whole move could be re-traced i.e. back to Dow 14,800.

MACD - MACD is heavily oversold which means a stock market bounce is imminent, though it would not mark the end of decline, so its going to be a tough learning experience for bottom hunting traders.

TREND ANALYSIS - The Dow has broken 1 major support trendline and is bouncing off the second, however given the velocity of the decline to date the bounce looks temporary and thus the Dow looks set to break this trend line to target the third stronger trendline at 15,000, though that does not mean that is where the Dow will bottom i.e. it may only spike below Dow 15,550 to sucker more bearish sentiment.

SEASONAL ANALYSIS - A DOWN JANUARY is usually a bad indicator for the stock market for the whole of the year i.e. implies a down year. This means that it is going to be tough for the stock market to reclaim and HOLD its recent all-time highs as many demented bears will be piling in on the short-side by jumping on the Down January band wagon. So 2014 is NOT going to be a re-run of 2013, and instead from what I can see through the mists of time that it is more likely to resemble an upwardly sloping trading range.

PRICE TARGETS - Upside targets are 15900, 16200, 16400, 16800, and 17000. Downside targets are 15,550 and 15,000. Which implies a lot of overhead resistance and less support, which again points to probability that we have not seen the low for the current move.

Stock Market Interim Conclusion

The current stock market correction looks set to attempt to revisit 15,000. How close it gets to 15,000 I can't tell, perhaps half way, just that the correction is not done to the downside. Following which the price chart implies that the Dow will enter an upwardly sloping trading range that would target a NEW all-time high. However given the nature of trading ranges it is difficult to say how many swings it would take for such an outcome to occur, i.e. the last such trading range comprised 7 swings before breaking higher. This one could be quite brief and just comprise 2 swings as indicated by the chart, which could imply a New Dow high by early April, though that does not mean that the Dow would be able to hold the high as it could remain in the upward sloping range for some time which implies Sell in May and Go away as probable.

So to answer the question - Is the stocks bull market over ?

NO ! No sign whatsoever that this (what people decades from now will look back on as being the greatest bull market in history) bull market is anywhere near being over!



Nadeem Walayat has over 20 years’ experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 120 experienced analysts on a range of views of the probable direction of the financial markets.

In the Aztec language the name for gold is teocuitlatl which means "excrement of the gods."