"Are You Bullish or Bearish?"
While this time of year tends to attract a huge influx of projections, we prefer to remain focused on the main currents that are driving all expansion.
And that can be a little nerve-wracking as we finished up 2019 strong, surprising everyone given where we were 12 months ago.
That’s the contrary nature of what the masses expect and what then unfolds.
It’s something that has filled many a book and research paper over the past decades, and we suspect that it’s a part of human psychology and investing interactions that will never change.
It’s easy to forget that while we are indeed ending the year at records highs in most areas those records essentially came in the just last 75 days, while the previous 20 plus months had exemplified a long, bumpy and fairly wide trade range.
Throughout that time, we’ve suggested focusing on several things well outside of the mainstream media reprises of dour, doom and drama:
- Long trade ranges break up - not down
- Trade ranges are more like rest stops - often "digesting" the activity of the previous year or two, and
- The lengthier trade ranges are, the more powerful and long-lasting their eventual breakouts tend to be.
So far, so good.
As the New Decade Dawns
Given record flows into bonds and out of stocks for 2019, I'd remind us all that the current sentiment (while far more bullish than before) sits on a false foundation.
We suspect it’s set to collapse, literally, at a moment's notice.
And if you doubt that then let two weeks of red ink unfold and you will see several things happen:
- A rapid change to bearishness
- 10-year treasuries dropping 15-25 basis points in yield, and
- A growing level of the "altitude sickness" we have repeatedly portrayed for you here over the last 10,000 Dow points.
A Baby Bull
Over the long-term we need to train our minds to ignore the chatter about an "old bull market."
By every definition this is a young, relatively new bull market.
Yes, I know it’s hard to wrap your head around that one.
But depending on the Index you follow this is just months old, not years.
The Russell 2000 is last in line of the major indices to trigger a new bull market cycle, and it’s only 5% away from all-time new highs.
Remember, all but one of the major indices entered a bear market in Q4 of 2018.
The reason most of the prognosticators were fooled is that it was basically over in 2 trading sessions.
Yet, even as all that unfolds, fear is present just under the surface. A vast portion of the crowd anticipates the next shoe is sure to drop soon - and their money tells you how they feel far more than their answer to "are you bullish or bearish?"
For those asking the question your concerns will become more properly timed when sentiment is raging bullish for a very extended period of time and is matched by massive inflows into stocks and out of bonds.
That set of events will not unfold at lower prices.
It will only unfold at (much) higher prices.
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