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No Signs of a Top Yet

10/22/2009 12:00 pm EST


John Bollinger

President and Founder, Bollinger Capital Management

John Bollinger, editor of Capital Growth Letter, says markets continue to move higher—and that’s the best reason to keep buying.

Perhaps the most interesting part of the stock market is what it isn't doing—namely, going down. In the old days, September had a fearsome reputation for stock market declines and, amongst the knowledgeable, an equally impressive reputation for important bottoms.

In more recent years, October has stolen much of September's old luster in that regard and has come to be the month retail investors fear the most and the month the pros go looking for opportunities.

From a seasonal perspective, the time to avoid the stock market is from mid- to late summer—late July through the bulk of October. Interestingly, the worst period of the year to own stocks is immediately followed by the best period—early winter through late spring, call it October/November through May/June.

The leadership in the early stages of this cyclical bull market has been fairly consistent. For example, the international exchange traded funds have been doing consistently well. I gather that is a combination of local price performance and dollar action. Coming through the consolidation, they maintained their participation and are now looking to reestablish their leadership. Until the dollar regains some traction, we think that international [stocks] will continue to be an attractive area for investors.

Mind you, I am comparing markets here. When it comes to stocks, I think mid-cap US stocks in good patterns offer superior opportunities.

It is often said that bonds offer stability and safety; in my experience, that is simply not true. For example, today many well-rated corporate bonds are trading for twice the price or more than they traded six months ago. We are not talking about exotic bonds, or hard- to-understand risky credits. We are talking about mainstream investment-grade US corporate bonds. How a volatile asset class of this type that undergoes such extreme price changes attracts investors is simply beyond me.

[Meanwhile,] commodity prices continue to improve. Our commodity composite just broke out to a new recovery high. So, while everyone and all their brothers and sisters bemoan a flagging economy, the commodity folks know that there is something up, and so do stocks. I'd be very surprised if by the time this earnings season is over, stock prices on average aren't higher. Most surprises, other than employment, will be positive for the foreseeable future.

We continue to like the market. A strong advance/decline line, increasing new highs, and persistent gains all add up to bull market action. The important part is that there is no sign of a top yet, none of the tell-tale technical deterioration we'd expect to see if risk was increasing. So, steady as she goes, buy 'em on dips and keep the faith.

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