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The
Bearish Pundits May Be Right, But The Reason Is Wrong |
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Over
the prior six weeks we've heard lots of arguments about whether or not
we're at the beginning of a new bull market. Today's edition is going to
stir that pot again... but scientifically, so we can come to a fair
and unbiased conclusion.
In short, all
the bearish prognosticators may be right - perhaps this is (or was)
just a bear market rally perhaps we are headed for even lower lows. The
reasons they're giving for the impending decline, however, don't really
hold water.
Don't misunderstand
- we know even talking about bullishness following yesterday's decimation
and today's iffy start makes it tough to entertain the idea. However, if
the so-called gurus are wrong about the reason, could they be wrong
about their conclusion as well? It's a question at least worth asking.
We're not going
to specifically call out the individual forecasters who have argued against
a
new bull market, and who now argue in favor of the last six weeks
just being a bear market rally. There are too many to list (some
more notable than others), and we don't have time to do so anyway.
 We
can,
however, sum up their collective argument. In short, they're saying
the rally over the last six weeks simply lacks the buying volume we need
to see for the effort to be a new bull market.
It's an idea
we've discussed before - back on February 22nd to be exact (click
here to review how we analyze volume). We agreed then with their
current premise.... any rally that lacks growing bullish volume is ultimately
doomed to failure. In fact, in late February we viewed the NASDAQ's
overall trend as bearish, based on volume data.
Specifically,
these guys have been arguing the bullish volume over the prior six weeks
has (1) been weaker than it should be for this to be a new bull market,
and (2) not been commensurate with the volume at the beginning of prior
bull markets.
Today we're
going to 'check their math' to see if their arguments are meaningful, or
helpful. Too often what these commentators state as fact isn't anything
close to being factual.
Charts don't
lie - the bullish volume since early March hasn't been nearly as weak
as these forecasters have said it's been (even if Monday's selling volume
was really strong).
 In
all fairness, it's not been 'through-the-roof' volume. But, it's
been persistent - the market has rallied on worse.
The nearby charts
of the NASDAQ and the Dow (with volume data) tell the story. Green volume
bars are bullish, while red volume bars are bearish. Though neither index
gets points for consistency, it's not like there's been no bullish
volume. In fact, the green bars started to get quite tall last week.
You can also
see the volume over the last six weeks - during the rally - was
no greater or worse than the selling volume we witnessed in February.
Oh, and
if you're eyeing the middle to latter part of two weeks ago as a potential
lull in bullish volume, remember, the market was closed on Good Friday.
Plus, the Thursday before that holiday was effectively a half-day since
many traders started the long weekend a little early. That wasn't a
decline in buying volume... it was a decline in any activity.
 So,
the question we ask is simple - what do these pundits mean when they
say the buying volume has been too light for the market to be at the beginning
of a new bull market? It's been far stronger than they act as if it's been.
Our posed question
in this forum is rhetorical, but if we get a chance to ask the same question
(and to demand specifics) we will. We encourage you to do the same. Until
then, keep these charts in mind the next time you hear these guys make
their case.... have they actually looked at the data?
Just for the
sake of argument though, let's compare the last six weeks to the beginning
of prior bull markets.
Why?
Basically, the same folks are telling us this big move off of March's
lows isn't like the beginning of other recoveries. This time,
we're lacking the volume (surprise, surprise) that we've seen with
previous rebounds. Therefore, they feel, this can only be
a bear market bounce.
Our question
- again - is as simple one.... what prior rebounds are they talking
about?
Yes, there's
got to be some volume to kick-start a new bull market, but if you think
we saw some miraculous volume with the bull markets that began in early
2003, or in early 91, or in late 87, or in 1985, think again. The
last time we saw significantly measurable 'accumulation' at the
onset of a bull market was in 1987, and even that instance wasn't
terribly decisive. If anything, the last six weeks look very
much like the beginning of prior bull markets.
We've put those
previous segments of charts nearby. If you're looking for a bigger (i.e.
clearer) image, go
here for a full-screen shot of the same charts in the 2000's, click
here
for the 90's, and click
here for the 80's.
Bottom line?
We're not saying
these gurus are wrong; we're just saying their arguments and opinions
are without foundation even though they may believe they are. Respectfully,
we ask them to get specific. Otherwise, we can only assume the trend
in place is the one that will persist.
Just some food
for thought regarding media commentators. It doesn't take substance
or reason to put on a good show.
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
