Roger Nusbaum submits: A reader submits:
Alot of people are bearish but what is the catalyst to reverse a 3 year bull market? Earnings have been good so far with 70% of the S&P beating. Any thoughts?
Bear markets usually start quietly with no real catalyst with regard to time. We all know the Nasdaq peaked in in March 2000, but why March? Why not six months later or six months earlier? The peak happened for no specific reason with regard to time. Bottoms also get put in for no real reason. PE ratios can appear cheap or appear expensive for long periods of time and have not offered much predictive value for determining major turns.
This is why I like the 200DMA. It is one of several valid indicators for signaling a problem with demand for stocks. When demand for stocks is good you should own stocks. When demand is bad, you should not own stocks.
Because demand can appear bad yet turn on a dime, I would never advocate zero stocks -- but you get the idea. Regardless of my sentiment at any time, there is either a problem with demand or there is not. This is a simplistic view, but in this case I think simple is better.
For now there is not a problem with demand. There is the threat of a problem but no problem for now.