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The climb of "Wall of Worry" typical of New Cyclical Bull Markets



August 12, 2009 – Comments (3)

Dow Theory Points to New Cyclical Bull Market  by: FP Trading Desk July 27, 2009 | about: DIA / QQQQ / SPY     FP Trading Desk #follow_this_user.follow_this_user span {margin-top:10px !important;}

With the Dow Industrials breaking above the highs of early June and the Transports following suit on Thursday, this action confirms a new uptrend by establishing a paid of higher highs and higher lows since early March.

That the take from RBC Capital Markets technical analyst Ray Hanson, who told clients that in the annals of Dow Theory, “this kind of action has signaled the start of a new ‘cyclical’ bull market.”

So while it is unknown how long the new uptrend will last and how high it will reach, the amount of momentum already in the market does tilt the odds strongly in favor of higher levels before a new Dow Theory ‘sell’ signal can form, according to Mr. Hanson.

How high might the rally go?

The analyst said the next resistance level for the S&P/TSX composite index is 10,726 (ended the week at 10,687), followed by a range of 11,700 to 11,800. For the S&P 500, resistance comes at 1,007 (ended the week at 979), then 1,044.

Mr. Hanson noted that at 1,044, the S&P would be up 57% from the March lows – pretty close to the 53% advance in the first major up-leg of the 1975-1976 cyclical bull market, “a cycle to which many have compared the recent advance.”

The analyst also said it is worth noting that after completing the first up-leg in 1975, the S&P retraced 40% of it prior to starting the next (and final) up-leg.

“We expect that there will be more and more rapid sector rotation and increasing emphasis on individual stock selection over the next several months,” Mr. Hanson said. “In line with what we’ve experienced in recent weeks, global economic growth themes seem likely to dominate during rally segments, and traditional ‘defensive’ themes during periods of pullback or retracement.”

In Canada, that means leadership will likely continue to come from Materials, with some rotation among Metals, Energy and Golds. In the U.S., upside leadership is expected to be biased toward Industrial Cyclics and Technology.

3 Comments – Post Your Own

#1) On August 12, 2009 at 12:49 PM, davejh23 (< 20) wrote:

Have we seen the market climb a "wall of worry"?  The huge rally off March lows does not look like the typical start to a bull market.  I'm not predicting the market will go one way or the other, but this "wall of worry" saying is what has lead many to believe that this is a bear market rally, and that we're due for a correction.

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#2) On August 12, 2009 at 2:26 PM, AdirondackFund (< 20) wrote:

This is not 'climbing a wall of worry'.  We are stuck in a Depression and the market is playing 'make pretend' just as the FED has instructed it to do, as your dollar is liquidated to nothing. The market could go to 40,000, but your dollar will be worth a penny by then.

It does make you wonder why you ever worked, ever saved, bought a house or even tried to begin with.  The system is fatally flawed, by design, and it has been that way for far too long to cause a Bull Market to even endure.  

There simply isn't any money to be made in the long run as a result of participating in the US Economy.  Whatever money you would accumulate will only be made worthless through FED interventions such as we are seeing today.

After you have timed the market perfectly, from the March lows, taken your profits, and paid your taxes, you will find that the money you have worked to create has been destroyed by increased Government demands, Inflation and a depreciated dollar.

This is what the Government thinks is a fair economy.  They must be kidding, right?  No one can do this, not even the Banks who are supposed to know better. So, they run to Government to cover their 'otherworldly' losses.  The reason why the Banks are taking such large risks is because they know unless they do, their net aftertax dollar will be worthless anyway. 

What we have here is not a 'wall of worry', what we have here is a system which does not work, will not work, and needs to be changed in order to support an ever increasing population.

It really is that simple.  Inflate away and destroy humanity in the process.  Great idea!  Better yet, let's take this show on the road and introduce it in places like China, Japan and India.  That way when our system, which they have adopted, blows up, everyone will be angry at the same time...thus causing War and potentially the end of humankind.

Welcome to our 'Egghead Depression'.  This is probably a good time for an armed revolt here at home.  The Banks and the Government have been caught stealing from The People.  It is really just that simple.       

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#3) On August 12, 2009 at 2:26 PM, IBDvalueinvestin (98.56) wrote:


The FED. comments in today's FOMC meeting gives the Bulls the Green Light to keep the bull market going higher.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 bln of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 bln of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

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