Friday, July 17, 2009

New Bull Market

Here is a daily chart of the S&P 500 covering the last year or so. Those of you who have read my book know that Wednesday was an important market event for the aggressive contrarian trader.

On pages 130-135 I described the market tactics I think an aggressive contrarian should follow. These tactics differ according to whether the aggressive contrarian believes the S&P 500 is in a bull market or a bear market. As I explained in my book, the simplest way to make this distinction is to compare the daily close in the S&P 500 to the 200 day moving average of these closes. A bull market is signaled when there is a close that is 5% higher that the 200 day moving average. This occurred for the first time in 18 months this past Wednesday when the S&P closed at 933 when its 200 day moving average was about 875.

At the moment, as I explained this this previous post, the aggressive contrarian already has an above-average long position. He did his buying in early March near the S&P 680 level. As I explained in that post and in my book the aggressive contrarian is waiting for September and for the first downturn in the 50 day moving average of the S&P that occurs after the first week of September from a new rally high. That will be his signal to reduce his long position from above normal to normal bull market levels.

How far might this bull market carry? As I explained in my book, historical precedent tells us that most bull markets last at least 20 months and carry the S&P 500 up at least 65% from its bear market low. Using this as a minimum expectation we would expect the S&P to advance to at least 1100 and reach its high in November 2010 or later.

The conservative contrarian is still waiting for an up turn in the 200 day moving average by at least 1% before he increases his long side exposure to stocks to above average levels.


  1. Interesting article.
    Do you think this indicator alone is enough to signal a new bull market ? Does fundamentals support that ? How about other technical indicators ?


  2. Nice chart.

    Noteworthy that the 200-dma has gone from resistance to support. A higher high after testing the support three times in a matter of weeks would be very bullish.

    There is also an inverted H&S breakout, test of the neckline from above and off to the races again that I show on a chart on my blog if you are interested. I'd be curious what you think about that. I think most of the TV people missed it looking for bearish patterns.

  3. You are always bullish.You were bullish all last year as well.

  4. The Charts are confirming Carl's analysis and Im in the "bearish camp".

  5. Nice work carl. I am looking for a short term top or consolidation before the move higher resumes.

  6. The 3 Peak Dome Lindsay Model is confirming a move higher after consolidation this week. Look for higher prices coming soon.

    I may need to rethink my bearish bias.


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  8. Carl,

    Getting great info from your blog, thanks. I was wondering how you calculate the 1% up turn in the 200 dma.

    The low so far appears to be 82.84 reached on 7/24. Do you start from here or restart if the dma dips below this level?