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Market Watch It Takes Bulls to Make a Bull Market
Market Watch It Takes Bulls to Make a Bull Market 
Market Watch
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| It Takes Bulls to Make a Bull Market |
| Wednesday, 17 October 2007 | ||||||||
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The bulls remain firmly in charge as the Dow Jones Industrial Average and S&P 500 stock indexes hit new all-time highs this past week. And with the Nasdaq Composite continuing to provide market leadership, the consensus is higher prices are in store. This is a bull market, and it takes bulls to make a bull market. For the week, the Dow Jones Industrial Average closed up 0.2 percent; the S&P 500 added 0.3 percent; and the Nasdaq continues to outperform, closing 0.9 percent higher. For the year, the Nasdaq is up a whopping 16.16 percent, and the Dow is higher by 13.08 percent, while the S&P 500 lags at 10.12 percent. So far, the place to be this year for stock bulls has been in multinational, large cap companies with little exposure to the subprime mess and credit crunch. Bull Versus Bear Arguments
The bulls argue that the Federal Reserve has clearly demonstrated its willingness to support asset prices at the expense of higher inflationary expectations. This has created an environment where all news is good news. Bad economic news is greeted with continued calls for Fed intervention, and this is good news because investors believe that Fed rate cuts are bullish. Good economic news is always welcomed, and in this case, this shows that the Fed is vigilant in its job and that the economy isn't slipping into a recession.Since the August lows, the motto “Don’t Fight the Fed” has been a winning strategy.The bears would counter that Fed intervention doesn't come without a cost. With gold and crude oil at multi-decade highs and the Dollar Index at generational lows, inflation—and some might even say hyperinflation—is rearing its ugly head. The bulls argue that global growth is the driver behind the market’s ascent, but the bears will remind you the US economy, which represents about 30 percent of world GDP, is slowing.The bulls would argue that the price action in the major indexes has been extremely strong and that leadership from the more speculative Nasdaq is the best kind of market leadership. The bears would point to the narrowness of the recent market action. The key financial and transport sectors continue to lag, and the underperformance of speculative favorite, the semiconductor sector, hasn't gone without notice.The bulls would argue that October is the most bullish month of the year when considering the third year of the presidential cycle, and this positive seasonality should be maintained as we head into November. The bears will point to “Black Monday," the 20-year anniversary of the Dow’s worst one-day percentage loss in history. Source : Trader's Talk This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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