The Bull may NOT be dead yet

David Banister
Active Trading Partners
Posted Nov 16, 2009

I posted the article or commentary below today on my subscription only site, I called this bull leg up on February 25th, and I also called a 5 year gold stock bull in early August of this year... we have seen a huge move up in gold and gold stocks since. Right now, there is lots of bearish evidence on the markets, which I have outlined on my website (I had predicted 10,400 on the DOW back in March as a top), but one set of bull evidence many are not looking at. - read below if you're curious. I am watching the Russell 2000 small cap index as a leading indicator and right now it remains a bit bearish, but the other indices are not confirming right now... so it's a tough call near term. Comments welcome.

The market action over last few weeks has been difficult to figure out. However, I do want to point out a Bull case for the longer term. A few times recently I hinted that if we break upwards into new highs on the SP 500 index, it may indicate a shift of larger importance on the long term stock market views. The reason I've said this is because it would be a 5th wave up in a bull structure since the March 2009 lows. This is called an "impulsive" pattern by Elliott, and it means the larger degree of trend has turned bullish. If this were to truncate and turn down very hard, then we had a "Corrective" pattern, which means we went up in an A-B-C fashion from March, and now the larger trend (To the downside) re-asserts itself.

Here is the contrarian "thing" though. Most of the Elliott wave analysts believe this is an A B C corrective to the upside, and we are about to turn down hard. The top analysts that I'm aware of are all thinking we are topping any day now, and it's very possible because it's in the Elliott views for sure. However, I want to point out a few things that are catching my eye right now.

1. The retracements (Pullbacks) since March have been shallow in nature. The first one was a 31% Fibonacci (50% of 61.8%) pullback (See Chart). The recent pullback on the SPY from 110 to 103 also turns out to be a 31% Fibonacci pullback of the wave 3 up we saw into October. Shallow re-tracements like this are not normal, and it requires me to re-examine the movements. (Shallow retracements back to back indicate the larger trend is powerful)
2. The DOW moved to a new high on this move last week, and the SP 500 is not far behind. If the SPY hits a new high, it means it's a wave 5 up and that means the whole thing since March is impulsive, or bullish for the long term.
3. In my Feb 25, 2009 article on 321Gold.com, entitled, "Is the market bottoming and nobody knows it?" I outlined at the bottom of the article an SP 500 10 year chart. In that chart, I mentioned that the entire correction from 2000-2009 (8 years) could have been nothing more than a large A-B-C pattern correcting the prior 17 year bull market advance. If that turns out to be true, then in March of this year, we began a secular bull market in stocks that will go on for several more years yet. In dollar inflation adjusted terms yes, but a bull is a bull.

If the above assumptions turn out correct, then I will be once again a lone ranger with a crazy forecast. Much like my August 2009 forecast of a 5 year bull run in gold stocks, so far that is looking pretty good (only 3 months in of course). When too much of the crowd is nervous on the stock market, when all the Elliott wavers are calling for a coming huge decline, and when people are still on the sidelines in cash, one must examine all of this and at least give the bull case a view.

Now, the 31% retracements are not normal. You would normally see a 50% or 61% retracement somewhere in this pattern since March. The fact that they are shallow means the impulsive nature of the bullish move is very strong. Underneath the bull move up in the SP 500 or Dow, is a lot of deterioration in small cap stocks, that is the bear side of this coin. It could mean the economy is slowing down for awhile, and then will re-accelerate... or it could mean money is rotating into large cap stocks now... very possible. In any event, I am watching the market indices to confirm whether this is a larger impulsive wave up or we are topping and about to decline hard to the downside. I simply wanted to present that there is a Bull case out there.

Another item I want to point out is one of the gurus I respect a lot is David Bensimon. Most have never heard of him, but he is a brilliant cycle and market analyst who looks at big pictures, wave patterns, larger cycles etc. He is steadfastly bullish after a correction he sees, but he has Gold going to $2,600 by 2014, Oil to 120 in 2010, and the indices climbing higher in dollar terms. His book back in 2007 won an international market forecasting contest amongst thousands of entrants. Since then whenever he pops up in the press I read what he is saying. He also called the bottom this spring, and he is remaining bullish but calling any near term pullbacks corrections only. Since his view is lining up with my alternate bull views, these are worth a look.

Here is the URL link to the SPY chart I did on Feb 25th for my bull article:

http://www.321gold.com/editorials/banister/banister022509/2_big.gif

Here are two charts. One is the SP 500 since March, outlining a possible bull view with a target of 120 or so on the SPY. The other is my long term 10 year SPY chart, showing the A B C corrective that ended in March of 2009. Stay tuned, the next movement has broad implications for strategy. We are at a tipping point, so I continue to monitor the price action to tell me where we are going.

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David Banister
email: dbanister@cox.net

David A. Banister is the founder and Chief Investment Officer of Active Trading Partners, LLC. David uses his unique methods of forecasting major market turns in addition to Gold, Oil, Sectors, and individual stocks with counter-intuitive methods he has developed over twenty years of investing.

David can be reached at dbanister@cox.net. The opinions of the author are his opinions only and not meant to be construed or interpreted as investment advice. Markets are extremely volatile and you should consult an Investment Advisor or Professional whenever possible.

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