Mike Lipper’s Monday Morning Musings
Is This “Bull Market” Real?
Editors: Frank Harrison 1997-2018, Hylton
Phillips-Page 2018
Government vs.
Market Participants
Late last week the
Department of Labor announced that 353,000 individuals were hired. The announcement
was credited with a sharp increase in US stock market indices, followed by surges
in some other countries. The validity of this information was not confirmed by other
data sources. The household survey showed only 170,000 people being hired, less
than half the 353,000 reported by the Department of Labor. (Many professional
economists in the private sector prefer to use the “household survey”. The main
difference is the Labor Department uses the number of individuals receiving
compensation, whereas the household survey counts the number of the people
working. Under current economic conditions, the number of people with second or
third jobs has been growing, resulting in a significant difference between the two
sources.)
Whatever the reason for
the difference, media pundits and left leaning politicians issued encouraging
statements suggesting the so-called single cause of inflation, jobs, reversing and
a new bull market in stocks beginning.
The problem with this
assertion is that for the week both New York Stock
Exchange (NYSE) and NASDAQ market participants sold more shares than they bought
and more stock prices declining than rising. There are two other statistical
surveys which also cast doubt on the pundit’s conclusion.
Before the
Depression there were a few market analysts who believed new price trends should
be confirmed before they are believed. A decision rule was formed requiring a
trend be confirmed by a further price movement of at least 3%. (I have not seen
a current measurement study, but the market expansion could require an increase
of even more than 3%.)
One of the market’s
wise tales is that the “public” is always wrong. Numerous studies have shown
that on average this is quite wrong. However, the public are often wrong in staying
too long with a trend. Depending on which market indicator is utilized, the US
market has been rising since late 2021 or early 2022. One could say the trend
is long enough and it could be due for a reversal.
I tend to use the Standard & Poor’s 500 (S&P 500) as my single
measurement device. It recently reached a new high of 4844. Applying the 3%
rule, a close above 4989 is needed to confirm a new bull market. I am convinced
it will happen, but possibly not now.
The best measure of
public trends is currently the weekly sample survey produced by the American
Association of Individual Investors (AAII). The survey tracks the bullish, bearish, or neutral expectations of investors
for the next 6 months. The statistical “norm” for each of the 3 choices is in
the range of 30%, with an extreme reading being 50%. Professionals believe an
extreme reading can’t be maintained for too long a period before it is marked
down. Analysts use these readings as contrarian indicators.
I have slightly
refined the 3% rule and suggest a reading be rated extreme when the highest performing
observation is 2 times that of the second highest. Guess what! The latest
bullish reading is 49.1%, with the bearish reading at 24.5%. BOTTOM LINE, I AM
DUBIOUS A NEW BULL MARKET HAS BEGUN. I prefer to wait until both the election
and chairs of the various critical congressional committees are identified.
Question: Will you share
what measures you use to identify bull and bear markets?
Did you miss my blog
last week? Click here to read.
Mike
Lipper's Blog: Worth vs Price Historically - Weekly Blog # 821
Mike Lipper's Blog: 2 Media Sins Likely
to Hurt Investors - Weekly Blog # 820
Mike Lipper's Blog: “SMART MONEY” Acts
Selectively - Weekly Blog # 819
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