New stock market highs get no respect

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.
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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.