There are many signals which are likely to confuse you about bear markets and bull markets. Unfortunately the market does not ‘pre-announce’ the start and stop of ‘bull’ and ‘bear’ markets. You need to look at signals – monetary, philosophical, psychology, and physiological!
You could look at how people behave, what they say and what they do. The media is a great place to watch – if you understand body language. However the sound should be on MUTE. Hearing / Listening to the media may be harmful!
Quite some time back this blog carried an article about why the prices of copper and aluminium had to go up – when you express prices as a relation to gold or oil! Similarly not long ago the S&P was available at 5 ounces of gold – now it is available at ONCE the price of an ounce. Surely the EPS will not be great, the economy is still trying to recover, – however all this is in the price, is it not?
Markets move because EPS improves, liquidity improves, and people get used to a particular level of the index! They then accept that 15000 is the new bottom, so they start buying. The amount of cash available in the world as a function of the world market capitalisation is also at an all time high. So if so much of cash has to come in, will it go in percentage of market capitalisation or WILL it create a new market cap story? The chances are a lot of money will come into India. Yes it may go into the mid and small cap too. Some money will be taken away by the QIB. NTPC will do an ADR. The government will list LIC. Inspite of all this money being absorbed you will see a nice 15 to 20% growth over the next 3-5 years. That is not bad – and it will attract some more of the cash….Of course it will not be a straight ride, but the direction is unmistakably northward. Ken Fisher in his Forbes column has already called an end to the bear market – Warren Buffet may swap his Goldman Sachs shares for something more valuable….and hey you will be in the middle of a full recovery towards a bull market.
The most important signal is yesterday I was speaking to a die hard bull. He could not see any reason why the market should go up. He found a lot of reasons why the market could go down. That is a great indicator of the coming of the bull market! To quote Ken Fisher
“That 9% mini correction between June 2 and July 13 was nothing to worry about. Pullbacks are normal early in a recovery. I can find only one bull market, in 1935, that didn’t have some material indigestion within its first 12 months. But bull markets roll on for years. This rally has taken stocks up 55% from their Mar. 9 low, as measured by the Morgan Stanley All World Index. That’s far bigger than any global bear market sucker rally. Interestingly, the record rebound has gotten less ink than the corresponding fall in prices during the first quarter. Maybe the bulls should be making a bigger fuss about what’s going on.”
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