The essence of a bull trend is a series of higher highs and higher lows. Just a few days ago equity markets as per narrow definitions (like the Dow) and more broad definitions (like the Value Line) were trading at multi-week highs. Markets looked so bullish that we struggled to find any bearish activity which we could take seriously. Perhaps not surprising there were few bears and what appeared to be a lot of bulls (perhaps that was the problem).
Now we find a situation where markets have fallen hard for two days (Thursday and Friday) last week. Now it appears that the bears have all re-appeared, so much for how genuine the bulls really were! However, on what “technical” justification can one maintain a bearish stance? There has been no evidence of a lower low as yet, that is, all the lows of October/November remain intact. If you can see a “technical” breakdown please let us know because we cannot.
OK so the fundamentals have changed you might say, but are you sure they have changed? If you found yourself bullish on the 1st of January and now find yourself bearish is it merely because the market has fallen by 5% in as many days?
So earnings have disappointed you might say? Oh that is interesting because it does not appear that way. Out of the 540 companies that have reported out of a universe of some 6000 (less than 10% but still a representative sample) 246 have had positive earnings surprises and 87 negative surprises – not exactly “disappointing” overall.
Be careful as to the reasons why you might be bearish on equities…….if you are bearish make sure it is based on your own judgement and not someone else’s! This may well be another trap laid out by Mr Market. We remain bullish on equities and see this weakness as a buying opportunity rather than cause to sell.
