5 Bullish Charts For U.S. Stocks

by: Lou Basenese

In Thursday's article, I promised to share with you why stocks could actually rally even if the economy hits a slow patch. I know. It's totally counterintuitive. But it's true. Since it's Friday, though, instead of proving it with some longwinded analysis, I'm going to let the charts do the talking for me. After all, a picture is worth a thousand words, right? Here's to hoping it's worth a thousand-point rally (or more) for stocks, too!

Five Reasons to be Bullish on U.S. Stocks

In a recent MarketWatch article, well-known pundit, Jon D. Markman said, "We are witnessing one of the most ragtag, stop-and-start, leaderless, rudderless, rowdy, dipsy-doodle, shoot-the-rapids, damn-the-torpedoes, get-out-of-my-way bull markets in the past 50 years."

Really, dude? You're complaining about a bull market? I'm sorry, but I'll take any kind of bull market over a bear market any day. With that in mind, here are five graphics that suggest the current "ragtag" bull market could actually continue.

Overwhelmingly Bearish Sentiment

The stock market seldom behaves like the majority expects. And right now, virtually no one is bullish. Take American consumers, for instance. Their bearishness spiked 10.2 percentage points, based on The Conference Board's latest Consumer Confidence report.

Click to enlarge

This isn't just a feeling, though. Average Americans are acting bearish, too. Case in point: Since April 2011, retail investors have withdrawn money out of stock funds in 59 out of 61 weeks, according to EPFR Global.

What about those closely-tracked Wall Street analysts? Well, they're hardly optimistic, either. Bespoke Investment Group calculates something called the net earnings revision ratio. It measures the number of analysts that raise earnings forecasts against the number that lower earnings forecasts for all the companies in the S&P 1500 Index. And guess what? For 10 weeks in a row, the ratio for the entire Index has been negative! That's a clear reversal from last quarter and a year ago.

Click to enlarge

Even on a sector-by-sector basis, each net revision ratio is negative. Talk about universal bearishness!

It's Earnings Season, Baby!

Ironically, the overwhelming bearishness on the part of analysts could set the stage for a major rally. They've essentially set the bar extremely low heading into earnings reporting season, which happens to be a historical sweet spot for stock prices.

Click to enlarge

As Jeffrey Kleintop, Chief Market Strategist at LPL Financial, says, earnings reporting season is "a six-week period that has been the best for the stock market in each quarter of recent years." That's not a trend I'd bet against. Just saying.

Stocks Follow Jobs

Thursday, the Labor Department revealed that initial jobless claims dropped to 374,000, the lowest weekly reading since May 18. The four-week moving average also dropped. And that's a definite positive for stocks.

Click to enlarge

As the chart reveals, changes in jobless claims explain 88% of the S&P 500 Index's performance since 2007, based on a study by Binky Chadha, Chief Global Strategist at Deutsche Bank AG. In other words, as jobless claims tick lower - and we have every reason to expect that they will - stock prices should head higher. As I noted before, it's the only way to win the White House in 2012.

Remember, It's an Election Year

Speaking of the White House, back in April, I noted the undeniable propensity for stocks to rally during presidential election years. If the market sticks to the historical script, we're in store for a (big) rally into the end of the year. So far, so good. Take a look:

Click to enlarge

Bottom line: I love me some contrarian indicators! And right now, most point to higher stock prices ahead. Even in the face of a weakening economy.