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Thread: 01/09/10 Bullish Fundamental Arguments for US Stocks.

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    Default 01/09/10 Bullish Fundamental Arguments for US Stocks.

    To my reckoning there are NO fundamentally bullish arguments. Anybody knowing one/some, then link it/them.

    Anything having to do with bullishness in the equity markets seems to be mostly technical arguments, of which it seems to me there are a good number.

    Below is from The Chartist (I don't take Sullivan as anymore prescient than anyone else) and from his Newsletter of 1/7/2010 he is up 44.81% since coming late to the party on 7/21/09.

    "Despite the fact that stock market newsletter writers are highly bullish, with the latest from Investors Intelligence showing 48.3% in the bullish camp versus 16.9% bears, the public has yet to embrace this bull market and that is one of the best things that it has going for it. Between July 31st and November 30th, investors pulled $36 billion out of domestic equity funds and pumped $142 billion into taxable bond funds. Since November 30th through the end of the year, they pulled another $10 billion out of domestic equity funds while putting $35 billion into bonds. A total of $46 billion has been pulled out of domestic equity funds between August 1st and December 29th.

    "Obviously the public is not onboard. Investors who
    are on the sidelines view the rally with a great deal of suspicion, wondering when the next shoe will drop with the bear market reasserting itself; however, they will come back as they always have as the economy continues to improve. One strong inducement is the fact that the yield from money market funds is at
    historically low levels, so much so that the majority of money market funds have been waiving their fees. If their regular fees were in place, money market funds would be generating a negative return. This bodes well for the market, and if the past is any criteria, we would expect a series of monthly inflows into the coffers of mutual funds prior to the end of the bull market. Having said that, we should point out that in the stock market as well as in life there are no guarantees. The best we can do is to try to have the odds in our favor, which we feel they are at the present time. "As we go to press, all of the key indices are above their 10, 50, and 200-day moving averages and all are at or slightly below their respective bull market highs. The Advance/Decline Line reflecting common stocks only has also made a recovery high which is another plus for the market, because the A/D Line often tops out ahead of the major averages (see chart above). As an example, the A/D Line reached its high of the previous cycle in early June 2007, four months ahead of the S&P 500 which topped out in early October. In the bull market of the 90’s it topped out in April of 1998, almost 2-1/2 years ahead of the S&P 500 which reached its high of the cycle in March of 2000. The high-low differential, which is a ten-day moving average of new highs versus new lows on the NYSE, is also positive and has been in a pronounced uptrend over the past three weeks and is very close to its peak levels of the cycle. Similar to the A/D Line, it is confirming the market’s upward trend.

    JN here. That is his impression, and the part regarding lack of divergences in A/D-line, so far, I think supports the potential for more upward movement in here, and the small caps and and banks at least for the kickoff of 2010 have regained leadership. I think Donald Coxe has made the point more that once that such leadership is significant. I'm no Dow theorist, but both the DJI and TRAN closed at new recovery highs on Friday too.

    Below is from today's Mike Burke Report.





    Lat week, the best performing major index did 3.07%, that was the RUT, and the $KRX (regional bank index) up 5.5%, $MID up 3.5%, and the $XVG (VGY) did 3.57%. And the $BKX was up 4.29%.

    Below is a sentiment indicator from Barron's, which as well as I could tell for some period of time in the past showed incorrect data, but recently, the data in the graph seem to me reasonable, whereas before it was truly screwy.



    I have never read how Citigroup derives the data for this indicator, perhaps it is like Finster's FDI--proprietary information. Normal asessment of the Citigroup data would suggest that fewer people currently have any bullish orientation (and that could be a sign of good sense), but on a contrary basis, such lack of "everyone being bullish" can be construed as actually bullish.

    I wanted to upload an .xls file that shows some of the sentiment indicators, and breadth data going back to near the beginning of 2006, but the tulip won't allow such an upload. Assuming my data are correct, it gives some insight to show how various data top out before the indices might.

    Anyone seriously interested can PM me and give me an email address and I'll send you back the file--at no cost to the first 10 that request it. After that the cost is 1M$. If more than 10 were to request it, I'll come back and make a suggestion. "Seriously interested" I don't think would include metalman, FRED, EJ, or c1ue--not picking on those guys, but those stick in memory as eschewing anything technical.

    My conclusion:

    I'm thinking this year reminds me of how I think I might have felt in 1987 (though I don't have such a good memory), which was nobody was predicting that market would continue to go up. Such a scenario of the markets continuing up for a while would fit into the historical performance analysis of the presidential cycle put forth by Burke, and it would give time during a continuing up-move for more supposedly small investors to capitulate in their bearishness if that is what actually exists at the moment with small investors.

    I'm personally giving the long-side of equities the benefit of the doubt for the next 6-8 months. Having written that means that a crash may be around the corner.
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    Last edited by Jim Nickerson; 01-09-10 at 05:38 PM.
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