The Rally Will Roll on

09/27/2010 4:55 pm EST

Focus: MARKETS

John Bollinger

President and Founder, Bollinger Capital Management

John Bollinger, president and founder of Bollinger Capital Management, discusses how stocks generally bottom in the fall and why he thinks those looking for a sharp market decline will be disappointed.

MoneyShow.com: Well, we’re looking at the fourth quarter of 2010 and into 2011 if you’d like to have an idea of what’s going on in the markets and what’s ahead. We’re talking to John Bollinger today. John, thanks for being here.

John Bollinger: Oh, thank you.

Q:  Alright, well let’s talk about the markets here as we end the year, the last quarter. What are your thoughts on the stock market in general?

A:  Well, my thoughts on the stock market in general are pretty typical for what the stock market does, and I think the stock market is going to disappoint a lot of people here. The reason it’s going to disappoint them is that a lot of people are looking for a big downdraft here. I don’t think that we’re going to get it. 

If you think about it from this perspective, typically, in a given year, there’s an important low in the stock market. Usually it comes in the fall. September and October are the most common months for it. In the older days, in the 1960’s, ‘70’s, and ‘80’s, it was typically in September. In the ‘90’s and 2000’s, it typically came in October, so it moved back a little bit, and that low was typically the best buying opportunity of the year. You usually had a pretty good rally from that low into certainly the first quarter and into the second quarter of the next year. But if you go back and look, it’s true that we usually have a big low early at some point in the year, but this year, it came early on in the year. So, I think people who are looking for this seasonal low to occur in September or October probably are going to be disappointed. 

Another aspect of that analysis is, there’s just huge bearishness out there. I mean, people really hate equities now. Everywhere you go, people are talking about how to reduce risk, how to pull money out, what alternatives are, the double-dip recession, (we’re) going to have another smash in equities. I even heard recently people talking about how some ETFs could go bust. It’s crazy the kind of fear that’s built into this system. Typically, from a contrarian point of view, the market goes pretty well opposite of the major emotion of the market, and right now that major emotion is fear. 

Q:  Do Bollinger bands give you an indication of the overall broad market. Can you apply them to the overall S&P or even the Dow?

A:  Indeed you can, and they are behaving very well in relation to Bollinger bands. We’ve built, we’ve put in a nice bottom in relation to the bands, turned up across the low band, tagged the upper band, pulled back a little bit, and now rallying again. It’s very very typical price action in relation to the Bollinger bands for an intermediate-term rally phase, and it looks like we’ve just begun that process.

Q:  John, thanks for your time.

A:  Oh, my pleasure.

Q:  You’re watching the MoneyShow.com video network.

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