When Might I Become “Bullish”?

In this post I would like to respond to a question that was raised in response to the final post (November 6) of my “Danger In The Markets?” series.

The question raised was “What would have to occur before you considered moving bullish?”

I will answer this question in the context of the general stock market (S&P500).  As readers of this blog know, I have repeatedly expressed doubts as to the sustainability of this stock market rally.  I continue to view it as a bear market rally, albeit a strong one.  If this indeed proves to be a bear market rally, by definition it will go below the 666 March low.  There are a variety of technical, fundamental, general economic, and “behavioral” characteristics of this stock market rally that cause me to draw such conclusions. 

Additionally, as I have previously stated there are a lot of factors and conditions in various other markets (outside the stock market) that cause me to be very concerned.  Posts explaining these concerns can be found under the “Investor” category on the right-hand side of the home page.

Another concern that I have is that, as stated in yesterday’s post, I view many asset classes as being in bubbles now.  This is a very serious condition.   Investing in bubbles can be extremely profitable on the way up; however, for the “long” investor they can produce huge losses if one doesn’t time the exit appropriately.  While I view some bubbles as being bigger than others, if the markets enter a “general liquidation” phase like they did in 2008 and most asset classes prove to be tightly correlated, as they were in 2008’s decline, there would be widespread severe losses throughout most asset classes.

A few years ago I ran across a quote that I found most valuable.  In essence, it said that the last place you want to invest is in an asset class whose bubble has popped.

To conclude, before I would change my overall stock market stance to “bullish,” I would want to see an overall market environment considerably different than that currently existent.   While I can’t exactly specify the parameters of this change, because so many factors are involved, I think a change to “bullishness” will be plain to see, if not explicitly stated, in the blog posts. 

One other thought…bear markets can last for years and can make many turns.  Assuming we are in a bear market, the ultimate low could be years away.


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SPX at 1111.62 as this post is written