In my column exactly twelve months ago, my view was that the equity indices would rally into the New Year and experience difficulties thereafter. I was right about the markets' direction into early 2012. But I was wrong about 2012 being a bad year. And, as soon as I saw the early effects of the European Central Bank's liquidity splurge, I ditched my outlook and have remained bullish ever since.
Equities excel in 2012
With that in mind, I reckon 2013 will be a good year for the DAX, FTSE, and Wall Street. The non-technical backdrop is favourable. When looking at any period beyond the short term, I think one has to take more than just the charts into account. Valuations are attractive, at least outside the US, and I foresee the economic and financial situation improving, albeit only slowly.
While I am projecting the S&P, Dow, and DAX to match or exceed their all-time highs in 2013 (1576, 14198, and 8152 respectively), I think the more interesting question is what might cause my forecasts to go wrong this time round. A colleague this morning compared today with the start of 2007, when the bull market was also approaching its fourth anniversary and the mood in the City and Wall Street was very confident.
DAX's path higher
Bull-market longevity is an important point. The present uptrend – which I date as having begun in early 2009 – is getting somewhat long in the tooth. According calculations by Jack and Bart Schannep (www.thedowtheory.com), the average bull market in the Dow Jones since 1900 has seen the index rise by 111.1 per cent, over an average period of 32.9 months. At its October highs, the present one had covered exactly 111.2 per cent and over 43 months.
Dow's mature bull market
At least in terms of time, therefore, the current bull market is already a bit longer than the typical uptrend of the last century and more. Of course, there have been booms that have covered much more ground and have gone on for longer. The most recent example is the run that began in 1990 and continued to 1998, during which time the index advanced almost 300 per cent over 93.2 months. But that was amidst extremely benign economic and financial conditions, neither of which apply today.
Dow in the 1990s
A more promising analogy is with the 1949-1956 bull market, where the debt-laden US economy was emerging from the Second World War and the devastating depression before that. Once again, though, I think there are key differences. Back then, Stocks were genuinely cheap to begin with, while the US economy was younger, more vibrant and faced less competition. Despite today's challenges, though, there is plenty of scope for further upside on Wall Street and elsewhere.
Finally, a small Christmas gift for two lucky readers, courtesy of my fellow technican Zak Mir. The senders of the first two emails I receive with the subject line "101 Charts for Trading Success" will receive a copy of Zak's book of that name.
