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The Greatest Bull Market of Our Lifetimes?
11/06/2008 12:00 pm EST
Mike Turner, president of Turner Trends, says stocks may be at the bottom of a multiyear consolidation, and we’ll eventually head much higher.
At some point in the future (and, probably the not-too-distant future), we will get to see the start of the greatest bull market in our lifetime. Within the last year, the Dow Jones Industrial Average has fallen from its high of just above 14,000 to just above 8,000. That 8,000 level on the Dow could be a significant support level.
In the past 108 years of the Dow, there have been four consolidation periods. The current consolidation is between a high of 14,000 and a low of 8,000. In each of those previous consolidations, the break-out below the lower resistance level was very short-lived and the bounce-back recovery was staggeringly abrupt.
The average duration of a consolidation period is 12 years. In 100% of the cases, each time the Dow has moved out of a consolidation period, the markets moved into a protracted bull market lasting an average of ten years. We are eight years into the current consolidation.
If this consolidation lasts 12 years, we have four more years before a major breakout to the upside. But, on the other hand, the Dow has to move from the 8,000 level to the 14,000 level before it can break out above 14,000. Observations of previous consolidation periods show that bounces off the bottom range of a consolidation period in the last few years of the consolidation, have been abrupt and dramatic.
And, even if we do drop a little below the 8,000 level, it would not portend Armageddon. The Dow has never in the past 108 years dropped below its consolidation period and into a protracted bear market—never, not one time. Could it happen this time? Absolutely! Do I believe it will?
So, I have to conclude that we are at, or very, very near a market bottom. The Dow could drop 20% lower and still not violate historical “norms”: 20% lower would put the Dow at about 7,500.
With that in mind, I have decided the risk/reward ratio is worth it to place a small amount of cash into the strongest, most beaten-up stocks. The odds are not high that these stocks will drop another 20%, even if the overall market drops 20%. But, the odds are very high that once the market begins to reverse, the reversal will be dramatic and very sudden. These beaten-up stocks could soar upward in the process.
The bull/bear rating [recently was] -5 for the third week in a row, with a ratio of an incredible 24-to-1 in favor of the bears. It just doesn't get any more bearish than that.
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