After a weak showing two weeks ago, the bulls came charging back this week. Earnings were by and large strong and news out of Europe was that fiscal conditions in many European banks weren’t as bad as most people were expecting. This resulted in a buying binge on Wall Street that posted a weekly gain of 3.24% in the Dow, 3.55% in the S&P 500 and 4.15% in the NASDAQ Composite.
As you know, we have been neutral to slightly bearish toward equities lately. So does this alter that view any? Not really. Our shorter term indicators have started flipping positive but our longer term indicators are still favoring bonds and cash over equities.
We believe we are in a structural bear market that, based on history, will last another 4 - 8 years. That doesn't mean we won't see rallies between now and then but we expect that we could see the lows of 2009 tested again. We also believe that we will see 2010 end flat to slightly lower. For 2011 we are leaning a little more to the bearish side but that is based on historical patterns and not because we are seeing anything concrete to confirm that opinion.
We are trend followers here and trade with the longer term trends for the most part. A one-day rally or even a one-week rally doesn't influence our opinion. Focusing on the intermediate to longer time frames keeps us in winning positions longer and gets us out of losing ones quickly enough to not do significant damage.
Now, if Mr. Market shows us that we are wrong, we will change our opinion. At this point we haven't seen anything to indicate that type of longer term change.
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