Stack: A New Bull Market Confirmed
06/15/2009 1:00 pm EST
James Stack, president of Stack Financial Management and InvesTech Research, says everything is now in place to declare a bear market bottom and a new bull market.
Our headline of InvesTech’s March 13th issue: “A Buying Opportunity of a Lifetime?” was published just four days after the bear market low at 6,547 [on the Dow Jones Industrial Average]. And indeed, unless financial Armageddon awaits just around the corner, that attractive level is unlikely to be seen again in our lifetime.
But just in case you weren’t on board for the last 2,200 DJIA points of market gain, there’s almost 5,500 DJIA points (+62%) of upside potential before the market highs of 20 months ago are reached—even though we question whether those old highs will be achieved before the next bear market strikes somewhere down the road.
Our model portfolio now stands at 92% invested—the highest allocation since the first year of the previous 2002-07 bull market. With our Negative Leadership Composite at a very bullish +66, and the Coppock Guide triggering a Buy signal in May, all blocks have now fallen into place to confirm this is a new bull market, and not a bear market rally or trap as widely feared.
Since the March 9th low, the bullish Selling Vacuum in our Negative Leadership Composite (which confirms the absence of negative or downside leadership) has continued climbing to levels never seen in its 48-year history except in bull markets. This essentially means that bear market leadership has virtually dried up. While there have been two false signals since 1962, both occurred at levels that were less than half today’s current +66 reading.
Also notable is that bearish Distribution (which signals that investors are anxious to sell stocks regardless of whether their position is at a loss) has completely disappeared, at least for now. If that reappears, then we’ll reassess our bullish outlook.
On this latest rally from the March 9th low, the Advance-Decline Line has moved decisively to a new high—well above its previous peak in early January and ahead of the major indexes. It’s a positive indication that breadth or participation is broadening in typical bull market fashion.
This reversal in the Relative Strength Index has turned out to be one of the strongest in decades, and from the most oversold extreme since 1932! Looking at over 100 years of data, one would be hard pressed to find a similar reversal from oversold extremes close to this that did not mark an important stock market bottom, and new investment opportunity.
[Also], the final reading for the Coppock Guide in May finished higher than in April. While only a slight up tick, it nonetheless confirms a potential Best Buy opportunity in stocks. And although very preliminary, the June reading will be notably stronger unless the stock market runs into heavy selling this month. With only two false signals in almost 90 years, this is compelling evidence that the bear market bottom is now in place.