A couple of weeks ago, I touched on a couple of so-called blast-off indicators, including one that likely triggered a green light a couple of weeks ago when 90% of all NYSE stocks rose above their 10-week moving averages. I want to expand upon it here, as well as tell you about a couple of other indications that we might be starting a long-term bull market.
In my write-up, I mentioned that “during the next nine months, corrections in the [S&P 500] have been limited to 5% in general.” That was a being a bit kind–historically, most corrections have been contained to around 5%, but in volatile markets, such as 1982 and 1975, there were a couple of pullbacks that took the S&P down between 6% and 7%.
The reason I’m bringing this up is because of the market’s recent action. After reaching a recovery high of 930 earlier this month, the S&P slid as low as 879 (down 5.5%) in the weeks since. Thus, I think now is a good time to see whether the “90% rule” is truly in effect. If it is, then the S&P really shouldn’t fall much below the 879 level before resuming its advance. A drop below, say, 850, would be a sign that this blast-off signal either wasn’t valid, or simply isn’t working this time around.
However, my strong belief is that this blast-off indicator will work, both because of the market’s upmove earlier this week (holding that 879 level), and more important, because of the extremely bullish “background” indicators that are currently flashing green.
Specifically, I’m referring to many long-term sentiment indicators that, similar to the blast-off indicators, only give signals once every few years. Glancing at a few charts of consumer confidence surveys, for instance, leaves you wondering how the market can’t go up in the months and possibly years ahead.
The Conference Board’s Consumer Confidence survey came out at 55 this month, a big improvement over 41 last month. But the real story is that the lows in confidence usually occur near major bear market lows–the reading dipped to the mid-40s at the end of the 1974 bear market, was near 50 in the early 1980s, and fell to 50 in the early 1990s, as the market was lifting off. But even those depressed readings were well above this year’s low of 25!!
You get the same message from other surveys–the Small Business Optimism Index broke decisively to new all-time (going back to the mid-1980s) lows this year, while the University of Michigan’s own consumer confidence survey fell to levels last seen in the early 1980s and the mid-1970s. These are not ho-hum readings. These are telling you that the average American is as pessimistic about the future has he’s been in decades, possibly ever! As optimism seeps back into the picture, prices for everything are bound to head higher.
Now, I’m not the type of guy to sit here and call for the Dow to hit such-and-such a level by the end of the year; I just take it one day and one week at a time. But the 90% blast-off indicator, along with the truly historic pessimism among investors and individuals, tells me to expect higher (probably much higher) stock prices in the months and years ahead.