The Primary Trend Is Still Bullish

The Primary Trend Is Still Bullish

The phenomenon known as the ‘market’, emerges from what is both a complex and chaotic system: Complex because of the innumerable variables involved (along with their interactions), and chaotic because, even if we knew how these variables interacted (which we don’t), we have no hope of knowing their initial conditions. Taking one of these variables and extrapolating it into the future in an attempt to predict the entire market seems like a ridiculous past-time, but that is what fundamental analysis does.

Our working hypothesis is that fear — fear of losing, and fear of missing-out — is what drivers markets, and that the economic fundamentals act as the ‘scaffolding’ that guides it and cements the established trend. The established trend continues to be bullish, even after a 10% correction; bullish sentiment remains below average, bearish sentiment is average, and nearly all the economic indicators demonstrate that the economy continues to expand. The mainstream financial news concentrates on the fact that the rate of expansion, in some parts of the economy, is lower than it was recently, while neglecting the very important fact that it continues to grow.

The past two weeks have hosted an emotional spectacle in the stock market; stocks rocketing up on news from the Fed that rates were “just below” neutral, then crashing straight down again on news of a Chinese CFO getting arrested and one of the rate-curves temporarily inverting. None of those news items have changed the primary trend in the stock market. In fact, a hostage taking in The Game of Thrones would affect the stock market’s primary trend just as much.

The primary trend has been bullish for the past ten-years and nothing has happened to change it; there has been no euphoric-buying, no talk about ‘it’s different this time’, and no excess build-up in the economy. The business cycle continues to expand, and sentiment is building a ‘wall-of-worry’ that the market is going to climb to new heights. Technically, the primary trend is in place until the long-term trend-line is breached. For now, the long-term trend-line is a further 9% to the down side (chart below).

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The Primary Trend Is Still Bullish was originally published in The Ticker Talk on Medium, where people are continuing the conversation by highlighting and responding to this story.

Source: Nicholas Gomez