John Bollinger, editor of Capital Growth Letter, remains hopeful on stocks amid stubborn pessimism and despite the market’s recent stumble.

I am constantly amazed by the amount of residual fear among investors today. At the slightest weakness in the financial markets bearish opinion surfaces, and a real down day emboldens the bears to an extent rarely seen outside of major, ongoing bear markets.

Basically, each negative event is sweeping investors out of the markets and strengthening the will of the bears. In turn, sanguineous bears go out and convince more investors that the risks are worse than the rewards. Eventually they will have convinced the bulk of investors.

I was reminded not too long ago of my assertion that the next bull market wouldn't begin until everyone had lost interest in the markets/investing, and we seem to be well along the path to that goal at present. If, as I argue, this consolidation began in 1998, we are now 12 years in. Based on a small sample of past cycles, 16 years or four presidential cycles is the expectation, which equates to 2014.

Fortunately we are nearing the end of the cycle and it looks as if the major motive reasons are all on the table, with the current deleveraging likely to be the final major fundamental event in the sequence needed to realize the full extent of the technical forecast.

The stock-market outlook remains positive; however once again there are some worries. The latest is the lack of follow-through after the recent breakout to new recovery highs. A pullback after a breakout is a fairly regular phenomenon, but I really wanted to see more strength here to decisively set the pace for the rally.

Instead we remain mired in sloppy trading, as witnessed by the interesting dichotomy of the Nasdaq outpacing the NYSE while the NYSE advance-decline line outpaces the Nasdaq a-d line. The strong performance of the Nasdaq-100 is quite interesting in light of the underperformance of a major component, Cisco Systems (Nasdaq: CSCO).

Europe’s Pride, London’s Stiff Upper Lip
Fear is also alive and well in the international markets, as can clearly be witnessed in the recent lightning declines in the Indian and Chinese markets. On the other hand the FTSE, a British index and one of our favorite leading indicators, remains quite strong while just across the channel in Ireland they seem to be fighting for their lives.

With at least three members of the European Union potentially bankrupt—Greece, Ireland, Portugal, and possibly more—the madness that is the euro might be ended. The vision of a united Europe was flawed from the start; their idea of wrapping it all up into one package to avoid another war and make them seem like they could punch at their combined weight was hopelessly optimistic.

One nasty side effect is that when the weaker countries were allowed in, membership in the EU allowed them to dig themselves holes that they will never be able to get out of without restructuring. But all speculation for a rational outcome is fruitless, because there is now a huge Euroland bureaucracy that will do anything to preserve itself. My best guess is that this problem will continue to flare up until either the EU breaks under the weight of the burden or the worst offenders are expelled and allowed to restructure—read a military style haircut to bond holders.

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