Four Steps to Identify a New Bull Market
The markets staged a relief rally this week, giving hope the bear market is coming to an end. Unfortunately, the HCM-BuyLine® remains negative and the trend is still down. This did little to affect even the short-term trend, so odds are that this rally was driven by shorts covering and maybe some speculators trying to pick up deals. By the way, there are some great deals out there. Ask yourself this question: if you bought today, would you be happy you did three years from now? I’ll give you my answer to that question using odds. The odds of the market being higher three year from now are incredibly high, and I would say even as high as 90% or better. When you look at stocks like Wells Fargo, Qualcomm, Inc., even Apple and Microsoft are looking like very strong buys. Being patient and waiting until the trend changes is important. We are in a bear market and the probability of the markets selling off even more is very high.
Approximate Cash %
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We are holding a lot of cash, and I have updated the table of cash positions in our funds as well as a couple of models. As you can see and as I have been saying, we are well-positioned to take advantage of a new bull market. And yes, there will be a new bull market; the only question is when.
The four-step process to a new bull market is: oversold, rally, retest, and finally a move above the HCM-BuyLine®. Retests are the third step in the four-step bottoming process because whether the recent bounce is going to be sustainable or not is still a very big question.
On the weekly chart of the S&P 500 you can see we are testing the 200-day moving average on a weekly basis. Could this be a classic retest of the lows set 6/17, or is there still more downside to come?
I found this chart very interesting. It shows that midterm years see a large pullback, but returns a year later are great.
Source: LPL Research Factset 1/10/22
