Friday, February 5, 2010


So are we witnessing the end of the cyclical bull market? Probably not.

All bull markets go through corrective phases. They all break trend lines. We've already broken three of them in this bull market.

The previous bull market broke four major trend lines. None of them being anything more than a temporay pullback.

I've been calling for at least a 10% correction for several months now to separate the second leg of this bull from the third.

Birinyi and Ass. point out that of the 117 corrections greater than 5% since 1945. Only 11 of those 117 actually turned into a new bear market. So the odds of this correction signaling the end of the bull are 9.4%. Not great odds to say the least.

We can probably expect a move down to at least the 1040ish level. But once we exhaust the selling pressure the odds are very good we will see new highs.

As I mentioned in last night's report, it's becoming apparent this is not only an intermediate level correction, but it's stretched far enough that this should also be the yearly cycle low. The only time selling pressure is greater than at a yearly cycle bottom is at a 4 year cycle low.

So while they are certainly scary and tend to exert tremendous pressure on everything they also tend to show the most powerful rebounds once the cycle bottoms.

The average rally out of a yearly cycle low is 19% with the median gain for the last 7 yearly cycle lows coming in at 15%. Since we are obviously in a cyclical bull, and the odds are against this correction signaling the beginning of a new bear, we can probably expect the rally out of this bottom to take the market to new highs.