A 'Life-Changing' Rally is Shaping up in the Stock Market, Predicts One Fund Manager
Comment of the Day

May 02 2017

Commentary by David Fuller

A 'Life-Changing' Rally is Shaping up in the Stock Market, Predicts One Fund Manager

My thanks to a subscriber who forwarded this letter from Market Watch. Here is a brief section:

“Most people can’t even consider the possibility of the market going significantly higher from here because, according to the media, this 8 year recovery is ‘long in the tooth’ and about to end,” he said, adding that investors were also living in fear of the 1987 crash back in 1987.

Finally, there’s the bull market super cycle.

As you can see by the chart below, the market’s pattern over the past century has been about 15 to 20 years of economic boom followed by 10 to 15 years of downturn. The cycle that we’re currently in looks to have started with the highs reached in 2013, and Fahmy says he believes it could last for many more years.

David Fuller's view

Veteran subscribers to this service are very familiar with this theme, having lived through the last two secular bear markets and the previous secular bull market.  The lengthy bearish phases are basically sideways trading ranges, punctuated by a couple of terrifying crashes.  We saw these crashes from Jan 1969 to Jun 1970 and Jan 1973 to Oct 1974.  Similarly, they occurred again from Sep 2000 to Nov 2002 and Nov 2007 to Mar 2009.  People of my generation will also remember the 1987 crash, which actually occurred within the previous secular bull market.  It was triggered by everyone trying to hedge at the same time with what was the newly introduced S&P 500 futures contract, as leading central banks raised rates sharply and simultaneously. 

We are currently in a new secular bull market which in my opinion commenced following the S&P 500’s last successful test of the MA in November 2016.  It could easily run for a decade or two, which would be consistent with the S&P’s prior history.  The biggest driver, as I have emphasised on many occasions, is the accelerated rate of technological innovation, shown here by the Nasdaq 100 Index and also the Nasdaq Biotechnology Index

Secular bull markets are inevitably punctuated by several large corrections and many smaller reactions.  Therefore, the worst time to sell in a secular bull market is following a big correction caused by events currently unknown.  Those setbacks, whatever their causes, are actually the best time to buy.  The best time to sell positions in a secular bull market is when they are temporarily overextended relative to their 200-day MAs following big accelerated advances.  However, I would buy them or similar shares back following reactions and remain fully long most of the time.    

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