This is Absolutely the End of the Bull Market! Really!?

Posted: January 29, 2013 in Burse, Diverse
Tags: , , , , , , , , , , , ,

Many stocks are overbought. And sentiment is shifting into the bullish camp. Last week was the second in a row equity funds saw net inflows. The move reverses the course of outflows that have occurred every week since July. In other words, the retail investor is finally getting the message that there’s a bull market.

And this is not all …  Another sentiment indicator, the VIX (which measures the S&P 500′s volatility) is at its lowest level since June 2007. The low figure suggests investor complacency. The last time the index was this low was four months before the market started its drastic slide in the wake of the financial crisis.

Source: This is Absolutely the End of the Bull Market

And the American Association of Individual Investors’ Sentiment Survey shows 52% of its members are bullish. It’s the highest level in two years – up over 8 percentage points from last week, and drastically higher than the 39% long-term average. Clearly, there are a lot of sentiment indicators suggesting the market should be topping out.

But a case can be made for stock prices to continue higher. Consider… 66% of companies that have reported quarterly results for the fourth quarter have beaten sales expectations. That’s higher than the 62% 10-year average; Earnings for S&P 500 companies are expected to be $1 trillion in 2013, 31% higher than the record set in 2007; Valuation is reasonable – the P/E ratio of the S&P 500 is 14.8. That compares with the 130-year average of 15.4.

The “Prophets”

Just like Betty tried to do, there are many pundits who’ve made bold proclamations about where the market was headed.

In 1987, Elaine Garzarelli, then an analyst at Shearson Lehman, correctly predicted the year’s infamous stock market crash.

She became an instant sensation and her opinion was in high demand.

But then on October 19, 2007, one week after the S&P 500 hit its all-time high, she appeared on CNBC saying she was extremely bullish. The market went almost straight down from that point, sliding 56%.

Art Hogan, former Managing Director of Jefferies, called a market bottom on October 10, 2008.

Unfortunately, the market continued to fall another 25%.

In 1999, James K. Glassman and Kevin A. Hassett wrote a popular book titled Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market.

It was a bold proclamation.

But that one, too, didn’t work out so well.

Joe Granville has had luck spotting bear markets. He nailed the 1977 to 1978 downturn. And in March 2008, he predicted the Dow would end at 9,000 – 27% below where it stood at the time.

He was right… The Dow finished the year at 8,776.

But he also called many bear markets that never happened.

One of those calls was his January 1981 plea to “sell everything.” It turned out the move was on the eve of an eighteen-year secular bull market.

Granville reiterated his bearish stance in 1995. Again, it was smack dab in the middle of a raging bull.

In August of 2011, Mark Arbeter, Chief Technical Strategist of Standard & Poor’s, said, “We believe we are seeing pretty clear signs that the 2009 to 2011 bull market is over and that the bear is just starting to get its claws into the market.”

The market has surged about 35% since then.

At the same time, Peter Boockvar, Equity Strategist at Miller Tabak & Co., said, “This is the end of the run.”

It wasn’t.

Not by a long shot.

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