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Sunday, March 27, 2011

Weekend reading- revisiting 5-year bulls.

 What I find interesting this weekend is that few folks who actually manage some serious money piped up on CNBC with some bullish voices. In very brief, the themes are that the stock market is undervalued, this bull market has ways to go, and we should expect it to take us significantly higher. For details these are the links: Laszlo Birinyi.
Bill Miller
Larry Fink
 Obviously, each of them has some research and tons of experience to back-up his opinion. Here, I am just going to see how these extremely bullish calls fit with my assumptions about this ongoing bull run. My current assumption is that this cyclical bull will follow the pattern of bulls from late 1960s through 1970s, where bull runs took form of ABC zigzags lasting on average 2.5 years, followed by very vicious bears. Then, something fundamental must have changed in 1982, and new pattern emerged, with each bull lasting around 5 years.

Looking further in time, at the period from 1932 to 1966, longer duration of bulls is apparent again. The very first bull that started during the Great Depression run for 5 years (seems familiar), and the subsequent bulls, averaged about 4 years (if you try to split 1949-1966 into separate bulls), with the caveat that entire 1949 to 1966 may be easily considered one bull run lasting 17 years. Keeping that background in mind, it is conceivable that this bull may actually last much longer than most people expect (with exception of few quoted above). What may be helpful in this debate, is the following chart.

DAX seems to have the most revealing and clean TA pattern, appears to be drawing an ascending triangle. That pattern would suggest 2.5 year bull for this episode and I am sticking with this prediction until proven wrong (not a triangle but flat that ended in 2009).

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