Different Kind of Bull Market
BY CARL SWENLIN
During the price advance from the 2009 low I have asked myself more than once, "What the heck is going on?" That kind of question more or less comes with the territory, but since 2009 the market has been extra confusing -- to me, at least. (This is an excerpt from the October 21, 2011 blog for Decision Point subscribers.)
Since the market top in 2000, many believe that we have been in a secular bear market, somewhat similar to the secular bear in the 1960s and 1970s, which moved in a broad trading range consisting of smaller cyclical bull and bear markets. This current secular bear has been composed of a cyclical bear (2000-2002), a cyclical bull (2002-2007) and another cyclical bear (2007-2009). Very clear and straightforward.
Since the 2009 price low we have been in a cyclical bull market, but it has been a very different bull market in that it has been punctuated, so far, by two mini-bear markets rather than the normal price corrections we normally experience. I have circled thsoe bear market lows on the chart below. (To clarify, we define a bear market as beginning when the 50-EMA crosses down through the 200-EMA.)
The problem has been that for each of these corrections/bear markets (2010 and 2011) my expectations were for a normal extended bear market outcome. Instead prices reversed upward and another leg of the bull market was tacked onto the price structure. Okay, that actually hasn't happened yet as far as the October lows are concerned, but I am pretty confident that is where we are headed. When the 2011 highs are exceeded, the rising trend from the 2009 low will be officially reengaged.
Bottom Line: Perhaps I have been alone in my confusion, and perhaps my expectation of new highs will be proven wrong, but my purpose here has been to clarify the context within which I think the market is and has been operating. Specifically, since 2009 we have been in a bull market that has been interrupted by two unusually severe corrections. While we have not yet reached new highs, we have discussed in our member blog why we think that the August/October double bottom was an important low. And it will probably prove to be the base for another up leg in the bull market. The most obvious price target is the top of the long-term trading range, about 1550, but I think where ever the next important top is made the "bull market" will finally be over.