Do you still doubt this is a bull market?

Throughout the spring and summer last year how many times did you hear the gurus on TV call for a 10-15% pullback or more? I remember PLENTY of times and noted it here. I also said that if we did see a 10%+ pullback better watch out because it would likely have indicated that the rally was in fact a bear market rally and such a convenient pullback would likely be the start of further weakness. I mentioned back then that if the rally that began in March was a new bull market pullbacks would be limited to less than 10% because that's how the initial thrust of a new bull market behaves....it's fast, relentless and doesn't give you those convenient entry points.

Furthermore, the initial thrust of new bull markets tends to last for about 12 months before going through a multi-month consolidation. I would say that the rally from March has pretty much passed the bull market test. We are 2 months away from the 12 month mark.

Let's take a look at how 1982, 1991, and 2003 initial bull market rallies looked like from the start and 2 years afterwards and compare it to the current rally

1982 Initial Bull Run

1991 Initial Bull Run





2003 Initial Bull Run



2009 Initial Bull Run



So, you can see that in each of these new bull markets above, the market basically went straight up for about 1 year with no 10%+ pullbacks from any peak. Then afterwards, there was a multi-month sideways or downward tilting consolidation period. The 2003 initial Bull Run looks a lot like the 2009 rally doesn't it? It's almost a carbon copy! Always be careful comparing the current market to some other previous period because seldom do things repeat exactly the same way but like these historical charts show, you do tend to see similarities in the behavior of bull markets during the initial thrust.

In my "the follies of sentiment" post I made note that during the initial bull market thrust, extreme bullish sentiment from Investor's Intelligence surveys tends to happen but the market simply ignores it and powers through it anyways (aside from minor dips). The multi-month consolidation phase that follows ends up cooling off this bullish sentiment. Take a look at these long term charts and you will see what I mean (you probably have to click them to get a better view).

I see a lot of sentiment gurus and the perma bear retail bag holders warn about this bullish sentiment comparing it to levels that were seen in 2007 which foretells doom for the market. This is a mistake in my opinion. People need to do their homework.
Look at the big spikes in bullishness in 1982, 1991, 2003. All that resulted was a consolidation period before much higher highs were realized. The spike in bullish sentiment is simply an unwinding of the massive and chronic pessimism that preceded it. With TV commericals still making mention of the reccession and "hard times" do you honestly think people are extremely bullish? Give me a break. The same goes with the typical retail investor which I think I've done a good job in proving how skeptical/bearish they still are.

So, in conclusion be on the lookout for this initial bull market thrust to end in March. It's possible, like in 2003 to see the rally actually end sometime this month and then get retested once or twice with the last test being in March. Either way, we probably won't see any meaningful downside until at least March if we go by the "new bull market playbook". But let's not be careful in being dogmatic about this. There's no rule that says things must unfold this way...but by the looks of things, it seems like it will.

And another thing, if you have any decency in you make a donation to aid in this Haiti disaster. If you don't you're an asshole. Sorry, but it's true.