Nasdaq slays the bears
I have been feeling a great deal of pity for bearish traders in the stock market lately. Speculating on price falls in a rampantly rising market isn't just financially painful - it's soul-destroying too. I know because I've been there myself. In 2009, I was a dyed-in-the-fur bear and shorted heavily into the early rally in equities. In the process, I more than halved my trading pot. While I could barely face logging into my account in the morning, I dreaded admitting that I was wrong even more.
One of my big mistakes of that era was to focus my reading on fellow pundits with whom I agreed. I used to hunt out arguments that backed up my own bearish stance. Nowadays, I make a point of doing the opposite. While I am a raging bull, I skew my daily intake of commentary towards those calling for a correction in markets and, indeed, for much worse. So, what are they saying now?
S&P's long run
One negative market-watcher pointed out this week that the S&P 500 has now gone for a long time without a 5 per cent pullback. As of Tuesday 14 May, I make it 122 trading sessions, which makes it the lengthiest rally of the present bull market - by one day. In 2004, though, the index rallied for 235 days without a 5 per cent correction. And the record is 409 days, back in the 1950s. I fail to see the worry here, therefore.
A more intelligent timing argument comes from Kerry Balenthiran, the cycles expert who I interviewed in this video (bit.ly/VuGRpJ) some weeks back. Kerry highlights a cycle of 17.6 weeks, which he says points to a top in the Dow around now and a low around 13 September.bit.ly/17lY4XT That would obviously fit nicely with traditional market seasonality patterns.
Dow's cycle risk
I've said before that I have no problem with the idea that the markets may experience a bit of a shake-out before long. The real question is the degree of any pullback. Amid further money-printing from the Federal Reserve, I would punt on a shallow dip. That means something like the three-week 4.3 per cent pause in late 2010 or the 9 per cent decline between September and November last year.
Of course, my stance assumes that quantitative easing will continue at the same pace, and to the same effect. Alberto Savrieno suggests an increasing amount of the newly created cash is being hoarded rather than entering the stock market - (http://bit.ly/11v7P4N). "If that trend doesn't reverse fast, then this cyclical bull market is over," he says. "So even if M2 growth does pick up after a dip below 3 per cent, it will shorten the crash, but it won't stop it."
Money growth and the market
Looking at a chart of the patterns in the M2 money stock over recent years doesn't suggest that the slackening trend of late is a disaster in the making, however. As such, I am minded to keep backing the bull trend until there is a clear sign of a turnaround.
