Charts Provide An Unbiased Reference Point

One of the great things about stock charts is they allow us to track the markets using reference points from the past. For example, we may have drawn a trendline three weeks ago, then three weeks later the market rallies back to the trendline and reverses. Therefore, in today’s post we are going to republish a previous post, but with updated charts as of February 3, 2016. The updated charts alllow us to ask:

Have the charts improved in terms of looking more like the bullish turn in 1994?

The original post, “Do The Bulls Have Any Reason For Hope?”, was dated Jan 12, 2016. The same post appears below with updated charts.

Flexibility: An Ally In Markets

We recently outlined numerous concerns about the sustainability of the current bull market in stocks. Experience tells us that thinking we know what the future looks like is a big mistake. If you are skeptical about the previous statement, look at the track record for economic and market forecasts; it is not good. Therefore, under our approach we allocate our portfolios based on facts.

Since market profiles can improve when new facts come to light (see March 2009), it is important for us to keep an open mind about all future outcomes (bullish and bearish).

Markets Are Always Dealing With Good And Bad News

Markets and charts always reflect the net balance between good news and bad news. Bear markets start when the net balance shifts to the bad side of the ledger. The previous statements can be applied to any year with any mix of good and bad news.

Historical “Open Mind” Case

Given the 2016 market profile is concerning, it is logical to ask:

Have stocks ever rallied from a similar good news vs. bad news profile?

The answer is yes, in 1994-1995. Before you say, but today is different, keep in mind the market was dealing with good and bad news in 1994, just as it is today. The charts in 1994 reflected the net interpretation of all the good news and all the bad news.