Stocks Still Look Good—Despite Everything

08/16/2010 12:00 pm EST

Focus: MARKETS

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Pamela and Mary Anne Aden, editors of The Aden Forecast, say all the doom and gloom talk obscures the fundamental strengths of the stock market.

The stock market is still bullish. The rise that started in 2009 remains intact. Stocks are now poised to head higher.

Despite all of the negative news and commentaries, we have to go with what the markets are telling us.

Remember, the stock market looks ahead by about six months or more. So, even though the economy may not be doing well at the moment, the stock market is saying that the overall situation is going to improve.

Currently, for instance, the unemployment situation and the weak housing sector continue to weigh on the economy. But if we look at the recent action in the stock market, this won’t be the case for long.

All of the stock indices are looking good, both in the US and internationally. Better-than-expected earnings was one of the main factors driving stocks higher, and it helped boost confidence.

Despite all of the ups and downs over the years, a mega-up-trend in stocks has been in force since 1950. This is powerful, but more impressively, the leading indicator fell to its lowest level ever in 2009. These low areas have coincided with significant bottoms in the stock market, like in 1974 and 2002, and strong rises in the Standard & Poor’s 500 followed.

Currently, this reliable indicator is moving up, and the S&P is now starting to follow. This alone tells us that stocks will probably rise further, at least this year and possibly next.

This is being confirmed by Dow Theory, when the Dow Jones Industrial and the Dow Transportation Averages both closed simultaneously above their June highs on July 26th, they signaled that the primary bull market was resuming its upward path.

In our opinion, this would be further reinforced once they both rise and stay above their 2010 highs at 4,806 for the Transports and 11,205 for the Industrials. If they do, then there’s a good chance that these markets could keep rising up to near their 2007-08 highs.

That would be very similar to what happened following the big bear market in 1974. The movements in both cases have been amazingly similar. We could see a big move up to near the high levels of the past decade, which would be like the rise in early 1976.

All signs are suggesting that this could happen. And if it does, you’ll want to stay on board. For now, energy and resource stocks are very strong, and they’re finally making up for lost time. That’s because the oil price, base metals, and commodities are moving higher.

The same is true of the emerging markets, especially the Asian markets. Their economies are very strong, their stock markets are at three-month highs, and they’re still outperforming the US. We expect that’ll continue.

If you’re not in the stock market or you want to add to your positions, now is the time to buy. If you do, we recommend buying the strongest US and global stocks.

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