12 Indications That a New Bull Market Is Upon Us

1. All three major U.S. indices have now closed above their respective 200-day simple moving averages (SMA) and have made a series of higher highs and higher lows. These are the first steps in the transition from a bear to a bull market. Look for the 200-day SMAs on all three indices to slow their respective rates of descent, turn sideways, and ultimately turn higher as confirmation of this new bull trend.

2. Credit markets continue to improve. Most noticeably, the TED Spread has come back down into the .50-.55 range. As we have discussed before, the TED Spread has been a leading indicator for future moves in equities. In its own bear market, the TED Spread has now made a series of lower highs and lower lows since topping out last October. Even with this improvement, it should be noted that the TED Spread needs to fall even further, to the .30s, before it returns to the pre-credit crisis levels of 2007.

3. Breadth is increasing. While volume has been not been overwhelmingly effusive as is typical at the start of a new bull cycle, breadth has been very positive. The Advance/Decline Line on the NYSE made a higher high late last week, ahead of the Dow and the S&P 500's break above their respective 200-day SMAs. This shows strong underlying demand with most groups participating in the early stages of this nascent bull. Noticeably weak groups like the biotechs and utilities are also showing signs of bottoming, two groups which have historically led in the early stages of new bull markets.

4. Banks are raising capital easily. Bad news continues to be ignored and any slight hint of good news is embraced with open arms. This is bull market behavior. North Korea launched two new missiles last week and stocks barely budged. Jobless claims are still above 600k and the market feels good that they are not at 700k. Hewlett Packard’s earnings disappointed a few weeks ago and yet the NASDAQ was the first index to break to higher highs. Keep a sharp eye on how the market responds to bad news over the coming months for a sign of a change in investor sentiment and psychology.

6. Like the TED Spread, the $VIX is also in its own bear market, making lower highs and lower lows in the 40s and most recently in the 30s. Look for the $VIX to work toward the lower 20s as more money gets funneled into equities in the coming months. Lower volatility creates one of the most important backdrops necessary for any market to work higher: fresh money flows. With mutual fund cash piles at the highest levels in years, look for a continued move lower in the $VIX to bring in more money from the sidelines as intra-day volatility continues to decline.

7. The U.S. is following the lead of emerging nations already in bull markets. China, Russia, Taiwan and Chile have been in established bull markets for the past two months. A new paradigm continues to be created, with the U.S. slowly losing its economic might and emerging markets beginning to flex their collective muscle more forcefully than has ever been observed in our lifetimes. Look for this trend to continue in the coming decade.

8. A good number of pension funds and hedge funds have missed the move so far. With notable economists like Nouriel Roubini still calling for a retest of the March lows, the institutional money that has remained bearish has missed much of the upside move to this point. Fund managers who want to keep their jobs must now put massive amounts of money to work in an effort to play "catch-up" with the indices for the remainder of the year.

9. The “average Joe” market participant is still shell-shocked and too frightened to return to the market after selling out at the March lows. Odd lot selling activity on the NYSE is at the highest level in seven years, indicating that the small investor is selling into this rally as opposed to supporting it. Look for retail interest to improve as the year progresses.

10. Takeover activity has spiked of late. While the prices paid for some of these buyout are a bit befuddling - namely Intel's takeover of WIND for a 40%+ premium and EMC’s bid up for Data Domain over NetApp’s offer - this activity is very encouraging for the overall market.

11. As the market rallied off the March lows, a rare bull market indicator was triggered – the Martin Zweig Breadth Thrust (ZBT). According to Dr. Zweig, who authored the seminal book “Winning On Wall Street,” when the ZBT rises from below 40% to above 61.5% in the span of 10 trading days, a bull market is just around the corner. What makes this so special is there have been only 14 ZBTs since 1945 up until now. Let’s take a look at number 15:

Source: Worden TeleChart

12. With summer swinging into full gear, June and July will be busier than usual as institutional money goes to work so that money managers can enjoy August in the Hamptons. By getting fully-invested in the next two months, managers will still be able to take that August vacation, secure in the knowledge that they will not miss any further upside in the market. While this may sound outlandish now, things could very well play out this way. Never under-estimate a fund manager's desire to kick back and relax.

Now for the BAD NEWS: With valuations on the indices very high and the "easy money" already made over the past few months, I envision this cyclical bull market to be very short and uninspiring. Here are 6 reasons why.

1. The NASDAQ only registered 43 New Highs last Friday, a very low reading for a new bull market. The lack of strong big-stock leadership at the onset of this cycle suggests that we may only see 15-20% more upside before topping out. While leadership should improve in the coming months, the low number of stocks making new 52 week highs is a big red flag and an indicator that should be watched closely as the rally continues.

2. The banking system and the housing markets are not out of the woods by any stretch of the imagination. What will happen to the TED Spread and the credit markets when the Fed is forced by the bond market to slowly drain liquidity? Look for another quick recession to hit the U.S. economy late next year should rates on the 10-year bond move above 5% as the dollar weakens and inflation seeps back into the system.

3. There is too much resistance and too many angry sellers above current levels. Look for the markets to expend all their energy getting the NASDAQ back to 2100-2200 and the S&P 500 up to 1100-1175 before they top out. There will not be enough strong buyers down the road to overtake the legions of angry Americans who no longer believe in the stock market and the American dream. Like the economy, the U.S. indices will require many years of repair work before strong leadership can propel the markets above these significant zones of technical resistance.

4. Volume has not been overwhelmingly strong. Past bull markets have been typically marked by strong surges in volume in the indices on the up days. While it is summertime, the lagging volume on the recent pushes above the 200-day SMAs cannot be looked upon as anything other than suspect and a crucial indicator of market strength over the coming months.

5. We are only in year 10 of a secular bear market for equities. The commodity cycle still has a long way to go before it has run its course and equities become attractive enough to warrant the large and consistent money flows that are the hallmarks of secular bull markets.

6. With inflation looming and the long-term “valuation contraction” in equities not yet complete, expect a range-bound market and a series of mini-bull/mini-bear stretches over the next 5-7 years. This must continue until the public has finally sworn of equities "for good." Only then will we be in position to start a new secular bull market cycle that will last for over a decade.

Strategy: I think this could be one of the shortest bull markets in history. As such, I am trading very aggressively in names that offer the best growth prospects in the market right now. Furthermore, I believe that the easy money has already been made since early March. So while it could be a nice ride for the next 3-6 months, I think it is one that will end badly. It is just a question of when.

Comments

[friar tuck:]

if the human cannot find a job , the human will find something to make money. when we run out of food we venture out to find it .when we run out of income we venture out to find it. this is built in to our nature and we cannot resist the urge to do so.


On Jun 06 09:11 AM y1531y wrote:

> The problem is that people could not find a job. There are fewer
> and fewer Bears now. It is the time to sell, now.

Jun 06 09:39 AM

[pftittl:]

Excellent post. I have not had CC debt for years because it's such a stacked deck. Just imagine if any of us could borrow money at 1 Percent and earn 27 percent, even with the threat of default losses....


On Jun 06 08:54 AM friar tuck wrote:

> i don't have any scientific data to back this up but i do have a
> strong hunch that there are thousands of amateur traders coming into
> this market every day. the etrade, scottrade.etc. commercials and
> cramer are getting us common folk to join in and trade. unemployment
> will help the stock market because now we are home, watching tv with
> a laptop in our living room. we are not filling up with gas every
> other day, buying coffee, lunch, paying tolls or fighting traffic
> to participate in a mediocre paying job. we know nothing about shortselling
> and very little about option trading but we are making short term
> profits and paying off our credit cards. as these monthly payments
> become no more we find ourselves with more money to use at our discretion.
> we have not stopped shopping, we are just using debit cards rather
> than credit cards. the last thing i want is to get called back to
> that dead end job i had, where i see the upper management people
> walking off with all the profits. the credit card companies are going
> down in the years to come because of the way this market is trading
> right now. since march, my wife and i have paid and cut four of them
> and i plan to continue to trade until all of them are gone. then
> i will go ahead and invest for the long haul. we like it simple and
> sensible. no derivatives, no muni's, no bonds, no calls and puts,
> just study, buy low and sell higher. transfer to checking and pay
> down debt. i wonder if we are all being considered in this market
> or if there is even enough of us to count. this is something that
> no other downturn had in past history. if there are enough of us
> (amateurs are all bulls) we may be able to force the shorts to buy.
> the higher unemployment goes and foreclosures, for that matter, the
> higher the market will go. the banks have priced their credit cards
> so high that they are putting themselves out of business. there in
> lies the revolt. when banks charge 27% to borrow and pay 1% to save
> they will soon find themselves with no customers for their dirty
> wares.

Jun 06 10:42 AM

[H. T. Love:]

I love the presentation of both the "bull" and "bear" case. I think there's a 7th negative. On one of my CCs, I've already seen action.

The new credit card rules will curtail credit availability to all consumers, not just those with poor FICOs. I figure the banks will get pro-active and institute their changes ASAP. Clark Howard has also commented on some of the possible ramifications.

Anyway, the effect that I think might apply to your bear case is the reduced-even-further spending by consumers due to changes in their "rules of engagement" with the CC companies.

This will also have implications on the earnings of Mastercard, Visa, the issuing banks, etc.

My take is the "populist congress" is doing further damage to the economy they are trying to resuscitate.

Gotta' love those old "unintended consequences".

HTL

Jun 06 11:37 AM

[friar tuck:]

i think the legislation for new cc rules is somewhat a showing of the teeth so to speak, but that's why we have a government to stop abusive and deceitful practices. the new rules mean nothing to most of us as we know the old rule of supply and demand will bring all vendors in line. the new rules may have a completely opposite effect than what a lot of "experts" are saying. people may start using their cc again with the confidence that comes with the new rules. when the credit card revolt picks up steam the banks will most assuradly start making sweeter offers. there really is no need to worry about the consumer and their spending habits. if you build it RIGHT, they will come.

Jun 06 12:44 PM

[H. T. Love:]

On Jun 06 12:44 PM friar tuck wrote:

> i think the legislation for new cc rules is somewhat a showing of
> the teeth so to speak, but that's why we have a government to stop
> abusive and deceitful practices.

I was all for that. I'm a long-time hawk on financial institutions and the way ill-informed folks have been dis-advantaged by them.

> the new rules mean nothing to most
> of us as we know the old rule of supply and demand will bring all
> vendors in line.

I'm not sure about that part, near-term. Institutions have been able to reap large profits by (possibly) un-justified fees, high interest rates, raising rates arbitrarily with short-notice on outstanding balances, reducing grace periods, double-cycle interest rate calculations, etc.

They have gotten used to that. They are currently suffering in two ways: 1) large default rates and high risk of further increases due to their lax lending standards and 2) the better prepared customer base tends to pay balances in full every month, reducing their take to just the merchant's side of the transactions. As pointed out in other posts on Seeking Alpha, those who pay in full each month have long been on the institutions' radar as "freeloaders". From their POV, we get a free ride. They want to make x+y, but with us they make only x while the basic fixed costs remain the same.

By trimming expenses and putting in place new ways to generate revenue now, they intend to get back to x+y via another route.

Cutting rewards programs, reducing (Clark Howard even mentioned eliminating, but doesn't believe that will happen) grace periods, jacking merchant's fees, possibly requiring annual fees if you don't carry balances enough times or long enough, etc.

Banks are notorious for one thing: they know how to wring another penny out of any vehicle.

> the new rules may have a completely opposite effect
> than what a lot of "experts" are saying. people may start using their
> cc again with the confidence that comes with the new rules.

Savings rate now at 6.4% and expected to keep climbing, consumer still de-leveraging big-time, unemployment still rising (wait until the adjustments come out again for the latest report),
GDP growth still expected to be anemic at best, ... I really don't think that new rules on CCs will be that beneficial. After all, *most* that would benefit from them were probably financially illiterate (thank you government educational institutions) and fall into the category of those with high-risk FICO scores. Even if they did want to use CCs, with the new rules, they may not be able to get one.

> when
> the credit card revolt picks up steam the banks will most assuradly
> start making sweeter offers. there really is no need to worry about
> the consumer and their spending habits. if you build it RIGHT, they
> will come.

If you build it right, the majority of those that would benefit will not be welcome by the issuers. They are either the sub-prime borrowers or the ones who pay the balance in full each month. Those who pay will find more convenient ways to purchase and pay for what they desire. And a small portion will be like me: I'm already laying plans to reduce my already very small usage (mostly online purchases and to "float" money for a small gain in interest on deposits) of CCs.

HardToLove

Jun 06 02:19 PM

[Orange Option:]

I am with ya. Range bound stock markets means easy trading. You are correct, the break out down will be a nice one (see bad news 1-6 above). I think it will happen just as people get comfortable with the market, you know, the roll out of bed with the attitude/know all of 'everything is going to be all right b/c my 401k gained another 3%'. I personally wake up everyday with the notion, like I did on 9/11( of course with surprise), who's trying to attack us now? It actually helps me get up, b/c if I dont I might miss something. :) Super-duper inflation will come, all will be scared, the u.s. paper money we buy lunch with will actually be used as toilet paper, dow 1450.00 may just happen. OHHHHH thats right, that wont be allowed to happen, socialism wont allow it. NEVERMIND!!

Jun 06 03:33 PM

[Alphameister:]

Good analysis and good conclusions. Any investor seeking a more durable bull market had best look to emerging markets.

Jun 06 04:15 PM

[The Inflect...:]

Thanks Alphameister. Many of my existing positions are China based companies. Agree with you about a more durable bull market ultimatley hailing from emerging markets. Appreciate the input.


On Jun 06 04:15 PM Alphameister wrote:

> Good analysis and good conclusions. Any investor seeking a more durable
> bull market had best look to emerging markets.

Jun 06 05:06 PM

[The Inflect...:]

Thanks Alphameister. Many of my existing positions are China based companies. Agree with you about a more durable bull market ultimatley hailing from emerging markets. Appreciate the input.


On Jun 06 04:15 PM Alphameister wrote:

> Good analysis and good conclusions. Any investor seeking a more durable
> bull market had best look to emerging markets.

Jun 06 05:06 PM

[The Inflect...:]

Appreciate the input.


On Jun 05 11:40 AM Swashbuckler wrote:

> Excellent post. Thanks.

Jun 06 05:08 PM

[The Inflect...:]

I am not sure that I agree with your apocalyptic view on the next leg lower in this secular bear. I think we are looking at a series of mini-bull and mini-bear markets for the next 5-7 years. I could very well be wrong though. Only time will tell.


On Jun 05 01:03 PM Donald Ingram wrote:

> Agreed. We will experience the bull into the Fall months. Aptly named.
> Then the trap door will open with the markets zooming right on past
> the March low without even a sideways glance.
> A bounce will occur with a last gasp rally post Christmas season
> into early spring before totally capitulating at Dow 1450.
> The road to recovery will be a long, slow, grind with pain filled
> years ahead. The level of suffering coming to the United States is
> going to be shocking.

Jun 06 05:11 PM

[The Inflect...:]

Thanks RTF 360. Think it will be a bumpy ride from here with all of this resistance to eat through. Still, anything beats last year so enjoy it while we have it!


On Jun 05 01:45 PM RTF 360 wrote:

> Excellent & succinct post John.
>
>
>
> 8,900 high on the DJIN this AM on bad unemployment news.
> Bull Markets climb walls of worry

Jun 06 05:12 PM

[friar tuck:]

i am very much in agreement with you but i'm little put off by the labling of a group of people as finacially illiterate. the banks and underwriters are the ones who approved the applications. maybe they are the financially illiterate ones. can't they tell a dead beat from an achiever???


On Jun 06 02:19 PM HardToLove wrote:

> On Jun 06 12:44 PM friar tuck wrote:

Jun 06 05:37 PM

[H. T. Love:]

On Jun 06 05:37 PM friar tuck wrote:

> i am very much in agreement with you but i'm little put off by the
> labling of a group of people as finacially illiterate.

I can understand that. I've been known all my life for being a little blunt occasionally. However, with due respect, I believe the term applies to a large portion of the U.S. populace. What percentage even try to read the agreements that come with the cards? I'll wager it's a very low percentage.

Of those that do read, based on even the simplest of measures, like "Jay Walk", where folks can't locat the Atlantic, the Pacific, ... well you get the picture, how many of those understand what they read and can apply what they garnered in a meaningful way? I'll wager again a small percentage.

How many have torn up and returned a new CC after they receive it with the agreement included as I have done? I'll wager ... you know.

Now, my only supporting evidence that I am correct id indirect - the statistics about the rising default rates, the "average" level of household debt and the percentage of that on CCs (numbers easily found with a quick google if you want to know them). Anecdotally we have all heard the complaint that folks can't even make correct change without a calculator, which may not be pertinent, but which I believe demonstrates the lowered basic educational skills imparted to folks in many cases.

> the banks
> and underwriters are the ones who approved the applications. maybe they are the financially illiterate ones. can't they tell a dead
> beat from an achiever???

LOL. Are you intentionally ignoring the underlying cause of this behavior? Profit motive, Community Reinvestment Act, government coercion of the banking industry with allegations of "red-lining", need to get such loans off the books, "derivitives" are created and sold to accomplish this, etc.

Once you have no skin in the game, by packaging these loans and selling them, you don't care if they are deadbeats or not - you've made your profit and quotas and bonus. This went on with brokers, realtors, bankers, etc.

All endorsed by the government in pursuit of a distortion of the American Dream into "Everybody Deserves to Own Their Own Home". When I was growing up it was along the lines of "Everybody has an equal opportunity ..." finshed with your own statement of goals.

Ah well, time passes, things change. We could continue this ad infinitum. But let's be considerate of the other list denizens.

I've injoyed the exchange.

HardToLove

Jun 06 06:18 PM

[H. T. Love:]

Please excuse the "typos", which resulted in the spelling errors above.

HTL

Jun 06 06:24 PM

[vpratt51:]

I just want to tip my feathered green hat to the good Friar Tuck. Methinks him a just and fair man that anyone would like to tip a pint with. I am also an "everyman" investor.

I am fiercely proud of the part of my tax dollars that go to the common good, pay for infrastructure, education, science, even art. The national parks are MY parks. Hubble is MY telescope. The poor and unemployed are not MY fault, but helping them is MY honorable duty. Sure, I hate waste. But I'm more concerned with the greater waste of the "American Experiment" in civilization going down the tubes. You HAVE to stay tuned. It's just getting better all the time.

If the notorious Shire Reeve (sheriff) had instituted a fair and just tax system (even one similar to ours), the merry band of rabble rousers in Nottingham's forest would have gone back to work satisfied. The tax base would have increased and the funds would have put to use more fairly instead of being loaded into wagons bound for royalty.

I often wonder how many of today's "me first" people actually remember that Robin Hood was once their hero. Or William Tell.
Or the Lone Ranger. Or Sergeant York. It's never too late. I am an old fart in body only. I refuse to surrender my principles just because dollars are attached. I am not a member of any church, but the "Sermon on the Mount" is a keystone in my belief system.

End of Rant, thank you for your kind indulgence,
Vpratt, aka the Paxman

Jun 06 07:21 PM

[Tomcat101:]

We are not in a new bull market, but just in the eye of a hurricane.

Part 2 of the bear will hit you when you least expect it. As the mortgage rates rise and gas goes back to $4 the fragile consumer will get a kick in the groin and we are right back where we started or worse and the never-ending rally comes to an end.

Average people cannot afford paying $4-5 for gas. They will have to cut other spending to do it. Some will fall behind on their loans.

I want a car that you can put a cup of urine in the tank and it will go 400 miles. That's what we need right now. Only problem with that is that Obama would somehow find a way to tax our piss. LOL.

Jun 06 11:10 PM

[friar tuck:]

tippin' a pint with ya at the local would be my pleasure and i'll buy the first round.


On Jun 06 07:21 PM vpratt51 wrote:

> I just want to tip my feathered green hat to the good Friar Tuck.
> Methinks him a just and fair man that anyone would like to tip a
> pint with. I am also an "everyman" investor.
>
> I am fiercely proud of the part of my tax dollars that go to the
> common good, pay for infrastructure, education, science, even art.
> The national parks are MY parks. Hubble is MY telescope. The poor
> and unemployed are not MY fault, but helping them is MY honorable
> duty. Sure, I hate waste. But I'm more concerned with the greater
> waste of the "American Experiment" in civilization going down the
> tubes. You HAVE to stay tuned. It's just getting better all the time.
>
>
> If the notorious Shire Reeve (sheriff) had instituted a fair and
> just tax system (even one similar to ours), the merry band of rabble
> rousers in Nottingham's forest would have gone back to work satisfied.
> The tax base would have increased and the funds would have put to
> use more fairly instead of being loaded into wagons bound for royalty.
>
>
> I often wonder how many of today's "me first" people actually remember
> that Robin Hood was once their hero. Or William Tell.
> Or the Lone Ranger. Or Sergeant York. It's never too late. I am an
> old fart in body only. I refuse to surrender my principles just because
> dollars are attached. I am not a member of any church, but the "Sermon
> on the Mount" is a keystone in my belief system.
>
> End of Rant, thank you for your kind indulgence,
> Vpratt, aka the Paxman
>
>

Jun 07 12:55 AM

[friar tuck:]

yeah htl, i think you just described the chain of events that got us into this mess. where were the regulators? where was greenspan? it was going on for years. it happened to me back in 1993 when i tried my best to get turned down from a mortgage i knew we could not afford (my wife really wanted the house and she was a hottie). after applying i was pretty confident in a rejection but lo and behold, next thing i know we're moving in. it didn't take too long before everything imploded the wife left with all the assets and i gave the keys back to the real estate agent who led us down the path to the american dream or nightmare or whatever.


On Jun 06 06:18 PM HardToLove wrote:

>

Jun 07 01:13 AM

[INVESTGROUP:]

$$$$$$$$ WELL I DON'T KNOW ABOUT ANYONE ELSE HERE, BUT I'M GRABING THIS BULL BY IT'S HORNS AND WAITING FOR THE GATE TO SWING OPEN WITH AS MUCH OF $UTRM.PK SHARES AT 17 CENTS THAT I CAN LASSO.
FOR SOME REASON YOU CAN NOT PULL UP THE QUOTE ON SEEKING ALPHA,, BUT ANYWHERE ELSE YOU CAN..

Jun 12 03:45 PM