One Good Year Deserves Another

03/29/2010 12:00 pm EST


Dan Sullivan

Editor, The Chartist

Dan Sullivan, editor of The Chartist, says the current bull market shows no sign of stopping, which means 2010 may be a surprisingly good year.

The bull market celebrated its one-year anniversary on Tuesday, March 9th.

Many analysts feel that the very fact that the bull market has managed to survive for a year almost assures that more up side is in the cards. There have been 13 bull markets (rallies of 20% or more from the lows—Editor) over the past 80 years that surpassed the One-year mark. On the average, the bull markets that made it through the first year lasted almost 3 ½ more years.

Will history repeat? We simply do not know. Skepticism abounds. (This has certainly been the case during this current bull market, with investors pumping close to $369 billion into bond funds and less than $24 billion into equities since last March. That’s a ratio of over 15 to one in favor of bonds).

However, by the time the bull market approaches the one-year mark, it has demonstrated that it has staying power. Psychologically it becomes easier to commit. Once the public begins to embrace the bull market, the rally feeds on itself. With over $3 trillion in money market funds that are yielding virtually 0%, the potential fuel is certainly there.

In recent sessions, we have been impressed by the price action of the high-relative-strength stocks that represent the market’s leadership. In essence, strength is in evidence all across the board.

The all-important advance/decline line took out its previous bull market highs on March 2nd and recorded ten up side days in a row and 17 up side days out of the last 20 trading sessions. Advance/decline volume has also recorded new bull market highs.

Many of the major averages have followed suit. The breakouts by the Russell 2000, Standard & Poor’s Small Cap Index, S&P Mid Cap Index, and Value Line Geometric have been particularly impressive. There are very few of the telltale signs that make their presence felt during the latter stages of bull markets. Despite the heady gains, it has been somewhat of a stealth bull market. We are not seeing the euphoria and greed that takes hold near the peak. The public is still not on board.

The most important thing is the primary trend of the market, which is overwhelmingly bullish. All of the major averages continue to exhibit up-trending staircase patterns of ascending peaks and valleys. In the majority of instances, they are comfortably above their respective 200-, 100-, and 50-day moving averages. This is typical bull market action.

The number of new highs on the New York Stock Exchange [has] expanded rapidly on the most recent run up, which means more and more stocks are moving through overhead resistance. With our models in a positive mode, we continue to advise a fully invested position.

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