Outside-IN

Outside-INblog

Outside voices and views for advisers

New stock market highs get no respect

Stocks have navigated successfully through headline risk, incurring an occasional sharp and abrupt pullback, but always bouncing back

Jun 3, 2014 @ 12:01 am

By Gene Peroni

It's no secret that the bull market launched in March 2009 has garnered little respect. Is it the Rodney Dangerfield bull market of all time?

Even so, the stock market has defied mainstream bears, grabbing the brass rings at incrementally higher technical mileposts. For years, the stock market has navigated successfully through headline risk, incurring an occasional sharp and abrupt pullback, but always bouncing back. It seems that any feel-good moment about a new record high has been dampened by naysayers who seem to believe this bull run has been a mirage.

The amplitude of bearish calls has now risen along with the Dow Jones Industrial Average's latest all-time record closing. Following its latest accomplishment, the market has been referred to as “dangerous” and “frightening.” Certainly, I would concede that the DJIA is considerably above its widely watched 200-day moving average (by about 3%) and some slippage may be in store.

(See also: How to hit the jackpot by investing overseas)

From my perspective, however, stocks are not perilously overvalued. Also, I cannot remember a major top occurring amid such widespread calls for the bull's demise, with predictions of 10%, 25% and even 50% routs. The market does have a knack for catching the masses off guard, giving bulls the advantage here amid the gloomy recitals of committed bears.

Astronomic as the stock market's gains since March 2009 may seem, it has been anything but a straight-line leap into uncharted territory. Even though the major stock averages posted handsome returns in 2013, nearly half of the year was spent in a consolidating pattern. And, while 2014 has delivered three distinct all-time highs for the DJIA, the net change to date has been negligible.

That being said, there is a clear trend of gradually ascending highs with compliant support around the DJIA's 50-day moving average since mid-February. It is plausible that the market may succumb to the effects of trading-range fatigue that wears on the psyche of impatient investors, but like other selling tremors in recent years, I think such a shake-up would be relatively short-lived.

There has been a great amount of rotation since the start of this year and that's had significant impact on many so-called momentum leaders in such areas as health care and technology. While it has left these and other of the market's core leadership sectors technically bruised, it has not delivered a knockout blow. This corrective action seems to be sufficiently addressing short-term price excesses, pushing stocks back to acceptable, intermediate support levels and — in many instances — strengthening their technical structure.

Attempting to time price swings can prove to be tricky. It is just this type of market — one with an underlying bullish tone — that historically bodes well for a buy-and-hold strategy.

Eugene E. Peroni Jr. is senior vice president of equity research at Advisors Asset Management. This commentary originally appeared on the firm's website.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

One adviser's story of losing his son to the opioid epidemic

John W. Brower, president and CEO of JW Brower & Associates, shares the story behind his son's death from a heroin overdose and how it inspired him to help others break the cycle of addiction.

Video Spotlight

Help Clients Be Prepared, Not Surprised

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

Tax reform will boost food, chemicals, rail stocks. Technology? Not so much

Conagra and Berkshire Hathaway are two stocks that should benefit most from changes in the tax code.

Brace for steepest rate hikes since 2006 in new year

Citigroup, JPMorgan Chase predict average interest rates across advanced economies will climb to at least 1 percent in 2018.

Why private equity wants a piece of the RIA market

Several factors, including consolidation in the independent advice industry and PE's own growing mountain of cash, are fueling the zeal to invest.

Finra bars former UBS rep for private securities transactions

Regulator says Kenneth Tyrrell engaged in undisclosed trades worth $13 million.

Stripped of fat commissions, nontraded REIT sales tank

The "income, diversify and interest rate" pitch was never the main draw for brokers.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print