The Next Bull Market Is 4-8 Months Away

Looking at long-term indicators can reflect patterns not discernable in short-term analysis. The great cyclical bull and bear markets over the last 19 years can be seen in the chart of the S&P500 below. The top panel of the chart illustrates the zero-lag 10-day moving average (green line), while the middle panel (magenta line) shows the 300-day zero-lag velocity [VEL], with the lower panel (red line) reflecting the 500-day Jurik RSX [RSI].

When Focusing on the 300-day velocity, we can see that after the 2000 tech-bubble burst the velocity stayed negative for 2 years [2001-2002], and then finally crossed above zero at the beginning of Q3 in 2003. The current pattern of 300-day velocity suggests that perhaps another 4-8 months will be needed before it crosses above zero. At that point, we will be clearly at the beginning of the next cyclical bull market.

On the bottom panel of the chart, one can note that the 500-day RSX [RSI] indicator bottomed out during Q1 of 2003, which was a great buying opportunity. The 500-day RSX for today's close (May 22) suggests another post-bubble-burst buying opportunity.

Given these indications, it may be prudent to get into the market gradually by using 5-10% of your cash portfolio for acquiring depression-proof stocks (PM, KO, MCD, PG, JNJ, BP, ABT, XOM, CVX) once a month over the next 8 months. Staying in cash will never beat inflation, so re-investing dividends from companies whose earnings and dividend payout are increasing during today's harsh economic conditions will put the force of compound interest to work for you.

Another important issue is that if you are interested in benefitting from the compound interest of dividend reinvestment, you don't necessarily have to get back into the market over an extended period of time. Extending purchase of equities over time in order to get back into the market assumes that the price of all diversified equities you want to buy will remain low over the purchase period -- and this is simply not true.

Fundamentally, the best dividend-generating portfolio needs to be diversified across sectors. Diversification naturally means that some sectors will be down while others are up. With so many economic influences affecting the markets, it may be futile to think that you will get ahead by getting in slowly. The key factor is that in order to start compounding interest from dividends today, you need to get started sooner rather than later.

Last, recall that Warren Buffett stated that you should buy when fear is the greatest - and this may be now.

Comments

[dcb:]

I agree I'd like another big sell off so I can have a nice entry, but that doesn't mean I would stay in m position if i had nice gains. that makes no sense.


On May 26 04:53 AM ValueInvestor88 wrote:

> I am so happy when people are selling their stock!!! I already load
> in almost 75% of my portfolio in stock since last 2 months. Hope
> the sell off on March can happen again as my 25% cash can be used!!!!

May 26 08:42 AM

[samretlew:]

This article is right on target. Zillions of people are scared shitless/super pessimistic. Just read the responses to this article. ie. no way, can't happen, the world is doomed. Clearly, there is blood in the streets! This is exactly what Buffet is referring to when he suggests to buy when there is fear (super pessimism). I have been in the market for several weeks and profited handsomely. Currently, the market is in a consolidation mode. The longer this lasts, the better. Baby, we'll make money hands of fists.

May 26 11:31 AM

[Steven Vincent:]

I only wish we could have a retest of the bottom...it's just not very likely. A new asset price bubble is being born. One more time around for the Great Ponzi Scheme! There will be another crash after this rebubblification, probably in 18-36 months. That will be the crisis of US sovereign debt and the US dollar leading to a flight from US assets.

Check my new piece at: seekingalpha.com/artic...

May 26 01:15 PM

[tunaman4u2:]

By the time of your new bull market oil will be 100 at this rate destroying consumer confidence right in time for Christmas... good luck with that bro.

May 26 03:14 PM

[Vuke:]

It is extraordinary anyone would today try to forecast ahead on the basis of charting from older data.

The cloud of black swans circling overhead make such predictions impossible. You may as well be ripping the entrails from birds and reading them.

Be cautiously optimistic, but insure yourself well.

May 26 03:54 PM

[yellowhoard:]

This market is a majic show courtesy of Goldman Sachs, Morgan Stanley, etc...

It will go as high as they wish to propel it. Program trading rules the day for now.

Although, individual investor greed will become evident soon as the little guy can't sit on the sidelines any longer watching everone else ride the majic carpet.

I'm thinking late September, early October crash. There will be too much volume at that point for GS and MS to control the show.

May 26 04:14 PM

[Pink Panther:]

I just can't see how you can compare the bear market of 2001-2003 to this one. They are not even remotely similar.
The former was a bubble in a specific sector whose enthusiastic valuation metrics eventually spilled over to the entire stock market. Today's bear market is caused a full blown financial crisis caused by a huge debt bubble with incalculable consequences.
If you really believe you can predict the duration/magnitude of this bear by comparing the technicals to any previous bear market, then you really have no clue.

May 26 05:16 PM

[Leif Peterson:]

You could sell growth stocks now if you fear another large correction. However, I wouldn't sell dividend stocks for which the companies earnings and dividends are ever-increasing. Such stocks are not the type that you jump out of and get back into because of volatility and herd mentality.

May 26 07:57 PM

[the far side:]

the inflation monster is coming- its 1978 all over again- history is repeating itself. in four months there will be more pain,alot more.

May 26 09:30 PM

[Pink Panther:]

Again, your opinion does not line up with reality.

Fact is, that in this environment of debt deleveraging, dividend stocks did not much better than the S&P. Here's a graph of Dividend Achievers divided by the S&P:
stockcharts.com/h-sc/u...
From the beginning of '07 to now Dividend Achievers overperformed the S&P by 2%, hardly a notable difference.

If deleveraging of debt leads to forced selling, all assets will tank!

Leif Peterson wrote:

> You could sell growth stocks now if you fear another large correction. However, I wouldn't sell dividend stocks for which the companies earnings and dividends are ever-increasing. Such stocks are not the type that you jump out of and get back into because of volatility and herd mentality.

May 27 01:18 AM

[Peter Cooper:]

Surely the GM bankruptcy is going to spoil this party on Wall Street very soon indeed. And as other commentators noted the news from around the world is terrible - a Lehman style event somewhere else is very likely. Just get out of this market or get killed, see:
arabianmoney.net/2009/.../

May 27 01:41 AM

[gtmcduffy@g...:]

seekingalpha.com/artic...

May 27 02:23 AM

[jgbooker:]

I am in your camp yellowhoard. I fully believe a major downturn may be eminent (my guess is sometime in October). Be conservative; protect yourself.


On May 26 04:14 PM yellowhoard wrote:

> This market is a majic show courtesy of Goldman Sachs, Morgan Stanley,
> etc...
>
> It will go as high as they wish to propel it. Program trading rules
> the day for now.
>
> Although, individual investor greed will become evident soon as the
> little guy can't sit on the sidelines any longer watching everone
> else ride the majic carpet.
>
> I'm thinking late September, early October crash. There will be too
> much volume at that point for GS and MS to control the show.

May 27 07:21 AM

[Hot Richard:]

Good to see so many are still gambling on a bull. But, the Papa Bear that is coming will make the previous ones look like puppies. Papa Bear is not a bear I want to try to time.

I'm through with currencies. Mostly in oil and gold...until I see sanity at the monetary policy level of global governments. THAT is my green shoot.

For now I'll just watch you gamblers gamble and wish you well. Gives me more time to do research and secure my assets away from governments with sticky fingers.

May 27 10:13 AM

[James Quinn:]

A real bull market is 8 years away.

theburningplatform.com...

May 27 02:12 PM

[dcb:]

I think the term bull is short for bull shi....

May 27 02:35 PM

[Hot Richard:]

Bull Market?

Real vs. Nominal.

If you people don't start mentioning this in every article and post, I'm going to go back to my job at CNN.

May 27 03:01 PM

[Fighting Yoda:]

Overall stock market is way overpriced to further go up - unless we have another super bubble.

Current S&P operating earnings top down consensus forecasts are $43 (and Bottoms up $54). Based on even $54 - it is a PE of 16.7 - way too high. Economy is not doing well (even as per the Fed) - so we should not be expecting any significant upward revisions in earnings.

To get a perspective here are historical PEs:
S&P PE average 1936-08 - 16
S&P PE average 1960-08 - 17.1
L10 PE average 1960-08 - 16.9
Bear Market PEs - 1974-84 - Average: 9.47 (high 12.4, low 7.3)
Bear Market PEs - 1948-53- Average: 8.4 (high 11.0, low 5.9)

May 28 06:50 PM

[squark62:]

it's amazing (not surprising) to watch certain institutions get away with market manipulation.

On May 26 04:14 PM yellowhoard wrote:

> This market is a majic show courtesy of Goldman Sachs,
> Morgan Stanley, etc...

May 28 11:07 PM

[ValueInvest...:]

Buy now or regret later. I already buy into PG and JNJ since March. There is a nobrainer for owning this 2 company.

May 31 01:18 AM