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Opinion: The bull market in stocks is not dead
Howard Gold
Published: Sept 23, 2015 5:30 a.m. ET

It’s in an expected decline until the next phase hits later this year, says Ron Meisels

Here in the Northeast, autumn leaves are starting to fall, ripe apples are tumbling to the ground, and stocks — well, they’ve fallen hardest of all.

Since its peak, the S&P 500 index SPX, +0.40% has declined as much as 12%, while the Dow Jones Industrial Average DJIA, +0.32% and the Nasdaq Composite index COMP, +0.18% have dropped 14%.

Don’t expect things to calm down. September and October are two of the rockiest months for stocks, and August’s big correction caused a lot of damage.

But one of North America’s leading technical analysts says it will be the storm before the calm. Ron Meisels, founder and president of Phases & Cycles, a Montreal-based independent research firm, says we’re in a clearly defined pause in a bull market he expects to resume late this year and ultimately hit new highs.

In his reports and an interview earlier this week, Meisels said all market cycles have seven phases, five bullish and two bearish. We are in the fourth leg of the current cycle, a consolidation before the bull market enters its fifth and final phase.

“A bull market goes through legs and corrections, and we were overdue for this correction,” he told me in an interview. But once bull markets survive their first four stages, it’s extremely rare for them not to continue into the fifth, he said.

The chart below shows how the current bull market unfolded.


Phase 1 lasted from March 2009 to April 29, 2011, when the S&P 500 more than doubled. But then the market entered a classic seasonal swoon, plummeting almost 20% amid the second big Greek debt crisis and the debt-limit showdown in Washington, D.C., that cost the U.S. its AAA sovereign-debt rating from Standard & Poor’s.
From the Oct. 3, 2011 low of 1,099, the S&P nearly doubled again to a May 21 all- time closing high of 2,131. It hit its recent low of 1,867 on Aug. 25. The day before, the CBOE Volatility index VIX, -3.40% spiked briefly to 53, higher than it was even in 2011.
As the next chart shows, Meisels thinks the Dow “broke down through its major support in the low 17,000s [and] the major bull market trend line has been pierced.”
Meisels expects things to get worse before they get better.
He says Aug. 25 represented “a” but not “the” selling climax. He expects the ultimate low between 1,850 and 1,875 to show up just in time for Halloween, and it will scare the heck out of investors.
After that, Meisels looks for clear sailing at least through 2016, as presidential-election years are usually pretty good for stocks. He also noted that the recent Investors Intelligence survey showed the lowest level of bullishness among investment advisers since the bull market began. That’s a contrarian signal.
He said that, since 2009, stocks rallied by at least 32% after previous sell-offs of the current magnitude. That would get the S&P 500 to almost 2,500, by my own rough calculations.
Meisels won’t give a target level, nor will he say how long he expects the bull market to last, but he thinks it has a 75% chance of advancing to its fifth and final leg.
However, “usually if you have a very long leg 3, then leg 5 is shorter,” he warned. My own best guess (maybe it’s just hope) is that we will have one last run through 2016 before this bull finally gives up the ghost.
And we might not even get there. This bull market is very long in the tooth (more than six years old). It’s been propelled by central bank easy money and only a modest economic recovery.
With China weakening and Europe and Japan hardly recovering at all, the U.S. consumer, still chafing from the housing bust and Great Recession, is being asked to pull the world economy yet again.
Meanwhile, growth in corporate earnings, the true engine of stock market gains, may have peaked. A Federal Reserve rate increase (whenever that happens) won’t be the end of the world, but it won’t help, either.
So Meisels cautions that if the market retests its lows, the S&P 500 will have to stay above support in the mid-1800s. (Critical support for the Dow lies near the August low of 15,666.)
“Any lower, and the bull’s case starts to unravel,” he wrote. “If it breaks below 1,875-1,850, we’ll go toward 1,700,” he told me.
That would be the 20% decline some people say signifies a bear market, and indeed Meisels thinks the next bear will be of the milder variety — no 2000 or 2007. But who really knows?
I still think this a correction, but I’ll be watching closely and so should you. To paraphrase that famous movie quote, fasten your seatbelts, it’s going to be a bumpy fall.
Howard R. Gold is a MarketWatch columnist and founder and editor of GoldenEgg Investing, which offers exclusive market commentary and simple, low-cost, low-risk retirement investing plans. Follow him on Twitter@howardrgold.
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