Bullish views from an old permabear
There is "compelling evidence" that a new bull market began in October 2002 and is likely "in the first half" of its life cycle, Jim Stack, editor of InvesTech Market Analyst, declared Friday morning. The median duration of 15 bull markets since 1928 is 3.4 years, and the median gain for the S&P 500 is 76.7%, he noted. The current advance is just over a year old, and the S&P has risen 33.6% from its October closing low.
Notably, less than a third of those attending Stack's presentation raised their hands when asked if they thought a new bull market was under way. That reflected greater skepticism among attendees at the show -- heavily skewed toward retirees -- vs. the investment pros they'd come to see.
Factors that Stack cited for his optimism include the predominance of new 52-week highs vs. new lows in both Big Board and over-the-counter trading. Even during Friday's setback, new highs bested new lows 186 to 3 in the former and 219 to 8 in the latter. By comparison, new 52-week lows outnumbered new highs by nearly 2 to 1 in early 1999, he recalled, unwittingly citing another reason why stocks look better today vs. past episodes near Dow 10,000.
Another factor Stack cited was strength in global markets: The Dow Jones World Stock Index, excluding America, is up more than 30% in the past 12 months. "The attempt to reflate [the global economy] is working," he said, echoing a theme among numerous presenters.
Looking ahead to 2004, Stack predicted the gap between operating and reported earnings will close as the level of write-offs and writedowns ebbs in conjunction with an improving economy. Given that forecast and the current low interest rate environment, the newsletter writer said "valuations are not as loony" as many skeptics contend. "The market is not cheap, but it's not overvalued to the extreme," he said.
Stack, who earned a reputation as a "permabear" because he was a vocal critic of valuations in the late 1990s, is currently the most heavily invested he has been in equities -- around 90% -- since the early 1990s.
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