For U.S. equities, the bull market still has years to go
I recently chatted with veteran technical analyst Ralph Acampora, a director at Geneva-based Altaira Ltd., about secular bull trends in the U.S. stock market. A real secular bull market can last decades, and he sees this equity market uptrend as similar to the long-term bull markets in the 1960’s and, more obviously on technical charts, the 1990’s. He pointed out that bull-and-bear trend measures and other short-term sentiment readings can change week to week, confusing some participants about the market’s longer-term path. Acampora laid out the psychology behind sentiment in a secular bull market, which has three long phases. It starts with fear of the bear market at the stock market’s bottom. At the March 2009 low, everyone was worried about further declines and losing money. The mood was characterized by fear and disbelief. In reaction, the first buyers in a classic bull market gravitate toward quality stocks. They lead equities higher, because no one wants to take risk. Investors say, “I’ll never do that again,” about buying junk. They only want high quality, high-yielding stocks. That’s Phase 1. It began in 2009 and lasted until now.
Phase 2 is characterized by trust and belief, and is led by secondary stocks. Since June 24, the Russell 2000 launched an advance, climbing straight up. Acampora said a lot of small- and mid-cap stocks are making new highs, whereas some Dow Jones blue chips are beginning to move sideways.
“People are now starting to believe that the world’s not coming to an end. They feel a bit more comfortable. Instead of just Procter & Gamble, a Dow stock, they’ll maybe buy Colgate, which does the same thing, but it’s not as high a quality,” Acampora said. C0lgate, a secondary stock, is representative of the changing portfolio mixes that are happening now. “It’s shifting right now. I’m saying that between March of 2009 and July 2013 that was phase 1 and we’re now walking into phase 2.” The third and final bull market phase is marked by complacency and greed. “That’s predominantly speculative junk. That’s your bubble,” and is years away.