Bull Markets Remain Intact

06/07/2007 12:00 am EST


John Bollinger

President and Founder, Bollinger Capital Management

John Bollinger, president of Bollinger Capital Management and editor of Capital Growth Letter, sees technical strength in stock and commodities markets globally and he thinks it will continue.

The marvel of this market is the shear persistent strength of it. The market was up [around] 80% of the last ten, 20, 30 and 40 days. 

To give you an idea of how strong that is on a relative basis, we were up 55.6% of days over the last two years, including the current run. Yes, this sort of overextended, overbought state does make me nervous, but recall the old saw: the most bullish thing a stock can do is get overbought and stay so.

This market’s naysayers are legion. Our advice is to go with the flow and enjoy the show until there is sufficient technical deterioration evident to raise a red flag. (This commentary was written before this week’s sell-off—Editor.)

The world’s stock markets continue to be swept along on a tide of liquidity, which I think is primarily petrodollar recycling, though central banks and monetary authorities remain accommodative.

Europe remains very strong, but the markets that are doing the best are the lesser-known markets—Malaysia, South Africa, Sweden, Brazil, and Australia. These markets tend to be more volatile and perhaps not for the faint of heart, but that is where the action has been.

Our international bellwether is the FTSE 100, the British stock market index. The UK market is the third largest in the world, after the US and Japan, and has served us well over the years as an international barometer. In any case, it is at a new all-time high, which is an all-clear signal for the moment.

Our thesis remains that we are in a bull market for energy. Our strategy is to acquire energy assets on pullbacks. These assets can be any of the many energy ETFs—big international oil companies, exploration and drilling outfits, natural gas stocks and now coal companies. The rationale for coal is straightforward. America has a huge supply of coal, 300 years’ worth by some estimates, and in a world increasingly demanding energy, that coal is going to be increasingly valuable.  From a technical perspective, these stocks look great; long declines leading to big bases that are just now starting to show breakouts.

We remain in a bull market for commodity prices. Our Commodity Composite remains above its rising moving average and has recorded a new high within the past month. Frankly, we don't see anything out there that will turn prices back in the immediate future. China and India are the immediate drivers here and our outlook is for continued growth for them.

This is a similar situation to the energy market; people simply want more commodities than are readily available. Here as in many other markets, demand has outstripped supply as is clearly evident on the charts.

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