“The same analysts and economists who never saw the bear market and recession coming, are now announcing the arrival of a “new bull market” and a ” revival of the US economy.” As for me, I’m sticking with my studies of the Dow Theory. First, I saw no indications of accumulation around the March 9 low. I saw nothing in the action of the Industrials and Transports that hinted of a bear market bottom. I saw a two-month bounce in the market following a 25-year bull market. Most bear markets tend to last one-third to one-half as long as the preceding bull market. I saw economists and the public turn optimistic after a two-month rise from the March 9 low. Normally, the public and the analysts remain stubbornly pessimistic for weeks or even months following the final bottom of a bear market.
All of the above fortify my belief that we are experiencing an impressive rally in a continuing bear market. It takes more than a sudden two-month rally that came out of nowhere — to reverse the trend of a primary bear market. My guess is that this bear market rally will continue higher until it convinces almost everyone that a new bull market has arrived, and that this is the time to buy.”
Sentiment — All three D-J Averages (Industrials, Transports, Utilities) surged to new highs today. This is impressive action, suggesting higher prices. There’s no question about it, due to market action, national sentiment is changing — people are becoming more optimistic. I can see it in the restaurants (which are now filling up), and I can feel it in the stores and the malls. The belief is that we have seen the worst, and the economy will only get better from here.
I’ve lived through a lot of bear markets, and I must say I’ve never seen sentiment change so quickly after an horrendous drop in the market. My impression is that Americans believe that the administration has the whole recession under control and better times will be seen before the end of this year.
Brilliantly simple insight as always….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
MarkW
Is it possible that improved sentiment is enough to pull us out of this recession?
Cullen Roche
That’s a huge component, but without some sort of real wage growth, debt reduction and a pick-up in the overall financial condition of the consumer it will matter little how happy they are.