The Bull Is Sharpening His Horns

Even if we're all a little punch drunk from the market's '08 directional changes, a close look at the tea leaves now shows a pattern of recovery. I see the market strengthening and its bounce from the bottom accelerating.

All three major indices have broken into positive trends and that's cause for a cautious hoorah. But, meaning no disrespect to the revered Dow Industrial and other widely followed indices, the real blood-and-guts action takes place in the broad market. That's why, at times like these, readers know I look to the somewhat archaic New York Stock Exchange Bullish Percent Index (from the world of Point and Figure analysis) to tell me what the average stock is getting up to.

As I write this, the NYSE Bullish Percent is moving into bull confirmed territory, at 42 percent, that exceeds the previous top reached in February and I feel inclined to add another chip to the pile that's betting the market bottomed out on 1/22/08.

So, despite all of today's frightening headlines, it seems more and more stocks are actually returning to healthy chart conditions and gaining strength, as are the three major indices. Looking at Dow chart patterns, we see the bull sharpening its horns over the last month and poising for a major breakout at 12,800:

DJIA 1-year chart: (click images to enlarge)

This break would take out three previous tops in January and February, and we're waiting, pencils in hand, to record it. On the Point & Figure chart below, it is perhaps even easier to see:

DJIA 50-pt P&F chart

Just how important would such a break out be? Well, consider: With a Dow breakout above 12,800 would come a price objective between 13,800 and 14,000 - within a finger's reach of the all-time high.

Comments

[Gold n Stuff:]

I just read your other articles over at www.greenfaucet.com.
You weren't exactly pounding on the table in January but i will give you credit as you did have a bullish bias since then.

2008 Apr 03 07:22 PM

[Hoot85:]

It's still a bit early to call, IMO. Sure, we could beat the other 3 tops, and things are headed into positive territory. I just think that it will take a bit longer for what's left of the "credit crisis" to reverberate throughout the entire market completely. We still have some down days ahead of us, but I look to see the market turn bullish in the near future.

2008 Apr 03 07:29 PM

[Msrpaul:]

Yup. All the bad debt is miraculously written off, consumers can once again tap home equity to finance consumption their incomes can't support, unemployment has peaked at 4.9%, lenders are again relaxing their lending standards. The 4-month recession of 2007-2008 is now officially over! But the whispers from banks, car dealers, and oversupply of homes that lasts into 2010 are less important than the technicals. I'm gonna go out and buy a new car. I hear I'm approved.

2008 Apr 03 08:34 PM

[bruin532:]

All the tecnicals are lousy jobs, payroll, foreclosures, housing looks like the Fed PPTeam has been at work. The market should have been down today on the unemployment numbers but its up instead. Dont fight the Fed tomorrows numbers are gona be massaged to make thenm look good and yes we'll be up 200+ tomorrow. Technicals be damed this market is going up!

2008 Apr 03 08:51 PM

[gordon:]

$250 BILLION in 2007 in mortage equity extraction, even the 4th Q 2007 refinancings were 80% cash out, squeezing out what's left. That's reversed, since lower home prices were not reflected yet. Where are those expenditures= business profits going to be replaced? Higher wages? Exports are only 16% of US profits. The Fed has put a floor under stocks and that is what you are seeing, allowing $38 Billion (last week alone) to be borrowed PER DAY, by the primary dealers, and they were told by Paulson to BUY STOCKS, in fact, I bet the Fed has indemnified them from any losses. We are experiencing the greatest intervention in free markets in US history.

2008 Apr 03 08:52 PM

[SwampCotton:]

Bruce, I believe, from a technical analysis viewpoint, you have drawn the major line in the sand: 12,800 on the Dow Industrials. If the Dow can penetrate and hold above that number for five or more days, I would say the bear's back is broken. My personal believe is that all the bears are laying a trap for the bulls and will carve them into steaks from this level. I believe we will see 10,000 on the Dow before we see 13,000. My tickets to watch this epic battle are already purchased: SKF, the UltraShort Financials that goes up when the financials go down. Get ready to rumble!

2008 Apr 03 10:56 PM

[peterthepai...:]

I agree with Gordon and Msrpaul. This is the biggest fiddle ever played!

2008 Apr 04 06:18 AM

[Chuck:]

Sorry, but I believe Soros.

2008 Apr 04 08:49 AM

[rocketct:]

How do you deal with a market that's obviously manipulated in an election year?

Do you stand aside and let the bubble burst? Do you go with the flow? I'm confused!

2008 Apr 04 09:00 AM

[cynic69:]

The FED can't control the price of oil and there in lies the killer of markets. High energy prices are going to scuttle the consumer and bring the economy and the market to their knees.

2008 Apr 04 11:42 AM

[User 173557:]

Current P/E's
Dow Jones: 53
Nasdaq: 27
Russell 2000: 50
S&P 500: 20

One Year ago P/E's
Dow Jones: 17
Nasdaq: 25
Russell 2000: 40
S&P 500: 17

This market has to go down a looooong way before we can call a bottom.

2008 Apr 06 12:09 AM