Ralph Acampora - Technical Analysis Market Letter May 2013

An article by New York Institute of Finance instructor Ralph Acampora.

I want to thank my good friends at the New York Institute of Finance for giving me the opportunity to share my market thoughts on a monthly basis. Currently, my Twitter account allows me to provide daily updates but they are limited only to a series of short messages; but, now I am able to expand these  separate thoughts and to elaborate on my major thesis: "March 2009 Low - A Generational Bottom"

I firmly believe that stocks are in the early stages of a secular bull market that still has years to run. In fact, after close to 50 years of doing technical research, I can honestly say that I have never seen a market so hated, by so many, for so long.

Here we are at all time new highs in most of the market's leading indices and yet there are many pundits who are not participating. Please, I am not being critical of these folks because there are so many valid reasons why they have remained on the sidelines: the advance off the March 2009 low has been froth with so many serious domestic (e.g. US downgraded by S&P) and global (e.g. the 'PIIGS') concerns. And most recently: the political stalemate in the US regarding the sequester, the Boston Marathon bombing, and the Syrians crossing the Americans' "red-line' with chemical weapons, just to name a few. And new global problems like North Korea threatening to fire nuclear tipped rockets against its neighbors, Italy's failed elections, and the rising fears of recessions in Europe and China!

At this point, I take comfort in repeating the following three old Wall Street adages: "When bad news can't take the stock market down, that's good news!". "Don't fight the FED". And, "The trend is your friend".

This month's theme is: "Structural Stock Market Sentiment". Unlike the weekly Bull/Bear Indicator of market letter writers' sentiment or the regular AAII member poll of optimists/pessimists, which can flip from bullish to bearish extremes rather quickly (literally in a couple of weeks), my view of investor psychology has a longer-term perspective. It is a three part process: at the end of a bear market, investors are gripped with fear and disbelief - if and when they come back into the market, they will purchase quality, blue chips - defensive stocks - Part I. After a period of time (a few years) wherein they witness stock prices making new highs (today's market is making all time new highs) and/or not collapsing on bad news, they will eventually shift from disbelief to belief and trust - their new found courage will enable them to broaden-out their portfolio mix to include secondary issues and riskier cyclicals - Part II. And lastly, after a really strong market rise, the 'animal spirits' return and complacency and greed dominate investors' emotions - they take undue risks with speculative issues - Part III.

Question: Where do you think we are today regarding this three part process? For sure we are not in Part III - the last time we saw excessive investor speculation was in the late '90s, during the "Tech Bubble"! Currently, I believe that we are on the cusp of shifting from disbelief to belief; however, there are no real signs yet that the public is moving in this direction because they still have trilliions of dollars in money market funds and US Treasuries. The last four years have been a professionals' market - note that the volume on the New York Stock Exchange is roughtly 650 - 750 million shares per day versus approximately 1.5 billion shares per day before the subprime bear market hit during the 2007 thru 2009 period. And let's not forget that many of these professional portfolio managers have seriously underperformed over the past four years - they can't afford to let this market run away from them - thus, they have been using the market's hesitations as buying opportunities.

In the end, it is sector rotation that is the life-line of every secular bull market - stay tuned and I will update the emerging leadership as it materializes in coming issues of my monthly technical market letters.


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