We see China’s economy as on stronger footing than typically depicted, in both absolute and re...
Full Speed Ahead for Stocks
11/19/2009 1:00 pm EST
Pamela and Mary Anne Aden, editors of The Aden Forecast, tell why they think stocks are heading higher and will continue to rise for some time.
Gold and stocks are both moving higher for several of the same reasons—the floods of money and liquidity currently out there, interest rates near zero, and the weaker dollar.
Since 1981, the ongoing decline in interest rates was clearly a key factor which helped propel stocks higher. Eventually, rising rates would halt the stock market’s rise, but since interest rates are currently so low, they could move up for a while before they reach a level that’ll adversely affect stocks.
That’s what happened in 1955-1969: Interest rates and stocks moved up together, but finally the ongoing interest rate rise put a lid on stocks for about 12 years. The stock market’s movements in 1966-1976 were amazingly similar to this decade, and if these similarities continue, then stocks are headed higher this year and next.
The major trends are up, signaling that stocks are going higher. They’re also all pointing to an ongoing global recovery and better times ahead. Now, we know that many analysts disagree with this outlook. They’re certain that a big bear market is lurking just around the corner and in many ways, you can’t blame them. Why? Because the stock market hasn’t been a good place to be since 2000.
This has been the worst decade in stock market history. From 2000 to the present, the market has lost 10%, and that’s not even including the depreciation in the US dollar. Nevertheless, there have been times to profit. The years 2002-2007 provide a good example. The markets are currently indicating that we’re now likely in a similar situation.
Our reliable leading indicators are also telling us to stay the course. In nearly all cases, they’re just starting to rise from extremely low, bombed-out oversold levels. These historically low levels have always led to good-sized rises in the stock market, which tend to last at least a couple of years. This means that the global bull market in stocks still has a lot more upside potential, despite the impressive rises they’ve already had this year.
OK, so how high could stocks go? The Standard & Poor’s 500 could rise back up to its 2000 and 2007 highs, near 1550. If it does, that would be a gain of 40% from its current levels.
One item which will increase the odds of this happening is a Dow Theory confirmation.
As our dear friend Richard Russell recently mentioned, the Dow Jones Industrial Average closed at new highs for the move [last] week, but the Dow Jones Transportation Average did not.
In order to confirm, the Transports would have to close above its previous high, reached on October 20th at 4045.11. If it does, that would provide the final “all’s clear.”
We suspect the market will correct further in the weeks ahead and when it does, that’ll provide a good opportunity to buy new stock positions. It’s also important to only invest in the strongest sectors [and] go with the strongest global stock markets, which are clearly outperforming the US.
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