The bull market is still solid «
As we head into Thanksgiving, we know many investors are skeptical of the stock market. They feel it’s gone too high and it’s the next bubble.
Others point out it’s a manipulated market. The rise isn’t real because it’s all being orchestrated by the Federal Reserve. Margin debt is too high, making the market very speculative, and so on.
And while many of these factors are true, we have to ignore a lot of the chatter and go with what the price action is telling us.
Yes, the stock market is climbing a wall of worry, but that’s good, it’s normal.
Plus, the markets couldn’t be more bullish…
Recently, for example, Nasdaq /quotes/zigman/12633936/realtime COMP -0.50% , the S&P 500 /quotes/zigman/3870025/realtime SPX -0.39% , the Russell 2000 /quotes/zigman/2759624/realtime RUT -0.40% , the Dow Industrials /quotes/zigman/627449/realtime DJIA +0.25% , the Dow Transportation Average /quotes/zigman/627450/realtime DJT -0.39% and several of the global stock markets all hit new bull market highs. In most cases, these were also all-time record highs.
In addition, the Dow Jones Industrials and the Dow Transports signaled another Dow Theory bull market confirmation (see chart 1).
Chart 1 This is extremely solid action.
This year, for instance, the Nasdaq has already gained 28%. The S & P500 is up 23% and the Dow Industrials gained 20%. Meanwhile, the Dow Transports has been a top performer and it’s up 33%.
But despite these gains, our technical indicators continue to reinforce that the stock market still has more upside potential before it’s overbought.
As long as that’s the case, and despite short-term volatility, we’ll stay on board and we hope you do too.
There are several reasons for this, but we believe the most important one is…
Chart 2 The Fed’s easy money. The Fed has kept this bull market going since 2009 with its QE stimulus programs (see chart 2).
This has been the primary driver for stocks and there’s no sign it’s going to end any time soon.
The market likes Janet
The stock market is happy that Janet Yellen will be taking over for Bernanke.
She’s determined to boost jobs and it’s been her primary objective. And with the economy still lackluster, she won’t be quick to cut back on the Fed’s bond buying, risking higher interest rates, a slowing economy and a falling stock market as a result. It simply wouldn’t make sense.
More likely, she’ll want to keep interest rates low to help spur the economy and inflation, continuing on with the status quo. To date, we have seen nothing to indicate otherwise.
Of course, there are always surprises that could happen, so we have to be prepared for whatever comes. But it’s very unlikely she’ll change course for now. And with the evidence indicating she won’t, stocks will keep climbing that wall of worry.