Tuesday, September 1, 2009

Confirmed Bull Market !

As you can see in this chart, the 200 day moving average of the S&P 500 index has risen 1% above the lowest level it reached during the 2007-09 bear market. In my book on pages 129-130 I explained the contrarian rebalancing strategy for stock market investment, a method that I think is well suited for the conservative contrarian trader. This advance of 1% in the S&P's 200 day moving average has special significance for the conservative contrarian who is following this strategy. Since a huge bear market crowd had developed during the bear market the rally in the 200 day moving average means that the conservative contrarian should now adopt an aggressively bullish stance toward the U.S. stock market. He does this by moving money from bonds and cash into stock market index funds or ETF's until he has an above-normal portion of his portfolio invested in the stock market.

When will the conservative contrarian move back to just a normal stock market position instead of an agressively bullish one? In my book I said that the wisest course is to wait for the bull market to develop until prices have risen for at least 20 months after the start of the bull market and have risen at least 65% from the preceding bear market low. So the conservative contrarian would now be expecting to stick with his above-normal long position until November of 2010 and until the S&P has risen as least as far as 1100.