There are all sorts of reasons to remain bullish «
The stock market has been on a rip-roaring rise this year. It’s bullish, and it’s poised to continue heading higher next year.
Fighting the bull
Despite the market’s strength, it has become downright controversial to be a bull. Many are calling the rise a bubble. Others say it’s a fool’s market. Nevertheless, the market keeps doing what it’s been doing all year. Sure, it might stumble, but then it continues plowing higher.
In fact, this year marks one of the best stock-market rises in years. As stocks surged to record highs throughout the month, the market also triggered several Dow Theory bullish signals along the way.
That’s pretty incredible considering all the obstacles the market has had to overcome. There’s been the fiscal cliff, the government shutdown, the fear of default, deflationary forces, and more.
Yet stocks have kept on going. In classic fashion, they’ve been climbing a wall of worry, slowly but surely, without experiencing a normal 10% correction in over two years.
Stimulus and low rates to stay
As we’ve previously mentioned, despite the moderate tapering, the Fed is going to continue its easy-money policies. And since QE has been the main factor driving stocks higher, all systems are still go.
Reinforcing this, Yellen said she “does not see stocks in territory that suggests bubble-like conditions.” In other words, she’s fine with the rising stock market.
Seasonal factors are also very bullish for the market. For instance, November through April have historically been positive for stocks nearly 80% of the time, and it looks like the months ahead will not be an exception.
Plus, the economic news has been improving. This, too, is a positive for stocks, assuming it continues.
Technicals are bullish, too
Our technical indicators remain very bullish as well. Despite the strong rises we’ve already seen, our indicators are telling us that stocks are not overbought.
On the contrary, they still have room to rise further ( see chart here ).
Looking at the big picture for the S&P 500, you can see that its leading (long-term) indicator is not yet near the major high area.
This means there’s a good possibility the S&P 500 could keep rising up to near the top side of its uptrending channel. If so, it could eventually get to near the 3000 level.
Main Street buying
If this seems unreasonable, it’s important to remember that Main Street is jumping into the stock market. This year, small investors put the most money into stock funds since 2000. And as a group, they generally tend to be late to the party.
In other words, their participation is likely a sign the speculative phase of the bull market is now clearly underway. But speculative phases can last a long time, especially since investors have few investment options to pick from.
In this era of super-low interest rates, that makes stocks very attractive.