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Bears in Denial

As it always happens at the start of a new bull market you have the hangover of the bear market clouding the perspective and keeping everyone looking at the rear view mirror.

There is absolutely no question that many global markets have already embarked on a new bull market and the remaining markets are on the verge of doing so.

A quick checklist of major markets which have broken out or are on the verge of breakout :

Asia : China, India , Singapore are in confirmed bull trends. STI broke past its June 11th high last week. Korea, Taiwan and Hong Kong are just 2-3 % away from reconfirming their bull trends.

Europe : The DAX, FTSE and CAC 40 are all just 2-3 % away from breaking past the June 11th highs and also convincingly moving past their 200 dma and ema.

US : A break past 856 on the S & P is just one good day away.

Lastly the slow moving Coppock indicator has turned up indicating a very high probability of a new bull market. (This indicator has been wrong only twice in the last 90 years !!)

While everyone was talking about the bear H&S in June many failed to note the inverse H&S forming in all world markets which was much more significant due to the time duration ( 10 mths) it took to form as opposed to the bearish H & S which was formed over just 10 weeks. The right shoulder of the inverse H &S is also reconfirmed alternately as a bullish flag off the March bottom in most equities, giving a double confirmation of an imminent breakout.

Economic indicators are sequentially improving on all scores, housing, drop in jobless claims ( though unemployment will continue to rise as it typically does even after the recession has ended as it is a lagging indicator), as well as improvement in manufacturing as well as the ISM indices. ISM services has improved to 47 and ISM manufacturing at 45 are poised to give expansion signals very soon.

By all counts we are in recovery, however what is yet unclear is the trajectory this recovery will take.However with so much surplus capacity in the world and plenty of liquidity, it would be prudent to assume no inflationary risks are likely to surface for the next 2-3 years. The only thing holding back the recovery is sentiment and once that turns ( as it can on a dime) expect things to rapidly rachet up very quickly indeed.

As it happens ever so often , we will be well into the bull market by which time the average investor will wake up to the fact that the gravy train has left the station.

Denial is the first phase of a new bull market. Investors would be wise to open exposure to equities, for what may be the last chance to get stocks at S&P 850 levels in a generation.

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