Why I Still Like This Bull Market

04/15/2013 8:30 am EST

Focus: MARKETS

James Stack

President, Stack Financial Management

Jim Stack, who four years ago called the start of the bull market almost precisely, explains the reasons he thinks the current uptrend is not quite over.

My guest today is Jim Stack. We’re talking about how long can this bull market really last. Hi, Jim, and welcome.

It’s great to be here, Nancy.

We’ve had a good run, haven’t we, in the past year?

It’s surprising. This bull market now is 3.9 years old. It will be four years old in March. What’s surprising is we’re already longer than the average, or even the medium bull market of the past 80 years.

What’s the average?

The average is 3.8 years. So from that historical perspective, I think we can probably assume we’re in the latter half of the bull market.

However, with that said, bull markets don’t die of old age alone. What’s really nice about this bull market in particular is we don’t have those characteristic warning flags that typically appear immediately prior to a market peak or a bear market.

What are some of those warning flags?

Well, let’s talk about the macroeconomic and then the technical. On the macroeconomic side, the Leading Economic Indicators have preceded a recession by four months or more...a peak in it is preceded by four months or more in every recession of the past 50 years. That leading economic index for the US is still hitting new highs so that’s really confirming that we’re not in a recession or that we’re not going into an imminent recession yet.

In addition, if you look at the technical side of the market, we have three strong selling points for this market. One, we have strong breadth of participation. The Advance/Decline lines are not only moving with this market, it hit new highs ahead of the major averages.

In addition, it’s not just a new high in the Dow, it’s the high in the transports, the Russell 2000, the Wilshire 5000. Strong markets are those that are hitting on all cylinders.

Lastly, we also have bellwethers hitting new highs. These are those leading stocks in those economically sensitive sectors that tend to peak ahead of the economy, ahead of normal bull-market pops, and start declining. Those bellwether stocks are also hitting new highs in our Bellwether Composite, a special proprietary gauge we have.

Are these stocks typically in the Dow 30?

Well, not the Bellwether stocks. They’re in economically sensitive sectors like financials, consumer discretionary. Those are the sectors that peak out ahead, and they include the transports.

When they start declining, that Bellwether index has preceded every market top of the last 40 years. Again, right now it hasn’t peaked yet. It’s still hitting new highs right along with the index, which at least for now indicates this bull market is going to continue.

Do you have any idea how long? Look into your crystal ball, Jim.

Well, I can never forecast when a bull market tops. In fact, I think the last couple of decades...particularly the 80s and 90s have taught us don’t second guess when a bull market is going to end, because those turned out to be the two of the longest bull markets in Wall Street history.

Right, don’t bet against the chart, right?

Yeah, don’t bet against it. It’s better just to watch the warning flags and as long as they’re not appearing, then give the bull market the benefit of the doubt.

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