Bulls Should Win Market’s Tug of War

09/12/2007 12:00 am EST

Focus: MARKETS

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Pamela and Mary Anne Aden, editors of The Aden Forecast, say the bullish trend in stocks is intact until proved otherwise—despite the market turmoil of the past few weeks.

US and world stock markets have all held above or near their key moving averages. That’s important, because as long as they stay above those levels, then the markets will remain bullish. That is, the markets recently experienced steep downward corrections, but the major trends are up. That in turn means prices are headed higher.

For now, we’re still watching these moving averages closely. If the stock indices, for instance, were to decline and stay below these levels, it would be a very bearish sign and you’d want to sell a good chunk of your common stocks. It would also be a sign that the economy is probably headed for a recession.

So, we urge you to keep a close eye on 12,900 on the Dow Jones Industrial Average, 4800 for the Dow Jones Transportation Average, and 2510 on the NASDAQ Composite index.

We know that China has been the strongest stock market in the world this year, and the strongest markets almost always lead the pack. The fact that China is hitting a new high may be the first sign that the market lows were reached in August and stocks are now poised to keep rising.

Even though it’s still too soon to tell, a few other straws in the wind are pointing in this direction as well. Most important is the global boom, which remains very strong. In fact, world growth is historically the strongest it’s ever been. That’s expected to continue, especially in China, India, Asia, and the emerging nations where demand is greater than ever and growth is surging as these countries rapidly modernize, building their infrastructure and cities in the biggest expansion the world has ever seen.

The Global index, a composite of 1800 stocks from around the world, [has] been strongly on the rise since 2003 and it hit a new high this year. The recent shakeout is really just a blip when looking at the big picture, and the major trend remains solidly up.

That’s also the case with the Dow Industrials. It remains in a mega uptrend and channel, and technical damage has so far been minimal. The Dow’s leading indicator also has room to rise further before it reaches the major high area. This means stocks could still head higher. And with interest rates likely to decline soon, that’ll provide a very positive environment for stocks.

Basically, it’s come down to a tug of war between subprime repercussions versus booming global growth. Assuming the subprime problems do not become massively widespread, global growth will probably come out the winner and it’ll be able to withstand the mortgage pressures that have recently emerged. If so, then the global bull market in stocks will stay on track.

On the upside, the Dow Industrials will show renewed strength if it can rise and stay above 13500. This will be a strong sign that the bull market is resuming its upward path.

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