A Win for the Optimists

The Dow and S&P 500 were solidly higher at midday while the Nasdaq Composite was in the green as well, having recouped morning losses suffered in the wake of McData's(MCDT Quote) warning, the resignation of Amazon.com's(AMZN Quote) CFO and J.P. Morgan's cutting forecasts on EMC (EMC Quote).

The morning session was the kind of action that no doubt brought cheer to the optimists, and few gurus have been as optimistic lately as Don Hays, of Hays Advisory Group. Hays has maintained a 100% recommended equity allocation for aggressive portfolios since Sept. 25.

Save for some "pruning" of positions in late December, Hays has reiterated the bullish view repeatedly since Sept. 25, and has been eyeing upside targets of 11,200 for the Dow, 1290 for the S&P and 2250 for the Comp, as reported here on Jan. 28.

As I noted in RealMoney.com's Columnist Conversation last night, Hays is someone readers either love or hate. Those in the latter category were gleeful as his bullishness went unrequited after the averages topped in early January.

But more recently, Hays' boosters have been rewarded for standing by the man who on Monday wrote: "This baby bull market is very much alive and well. The last eight weeks have been one of those times with multiple ear infections and bouts of nighttime sleeplessness, but ... we're delighted that we are already fully invested."

The bottom line is that eight weeks is a long time to wait, and major averages remain a long way from Hays' targets. Then again, Hays never claimed to be a great market timer, and followers believe the veteran market watcher is best at laying out macroeconomic/market themes rather than forecasting short-term machinations. (My experience following Hays' work has shown that to be the case.)

Today, Hays waxed effusively about one of his favorite big-picture themes: That the technology improvements of the late 1900s are akin to the Industrial Revolution of the late 1800s.

In fact, he compared the period from March 10, 2000, to Sept. 22, 2001, to the 1929-32 "wipeout" of the Industrial Revolution's "weak sisters." Having gone through its version of the Great Depression, the technology revolution will now embark upon a "maturing process [that] will be very similar to the maturing of the Industrial Revolution that occurred from 1932 to 1965," Hays forecast.

In other words, he believes the "secular" bullish trends of tech-enhanced productivity were only temporarily interrupted by a "cyclical" bear market, which he believes ended in late September.

Rather than get into a debate about cyclical vs. secular bear markets, much less Hays' somewhat curious reading of history, I'll make the following observation: The fact that Hays is making these arguments and (almost) nobody is laughing anymore is further evidence that what Lakshman Achuthan, managing director of the Economic Cycle Research Institute, predicted here last Thursday is coming to fruition.

Specifically, Achuthan forecast that the shortness of the recession and apparently robust rebound -- supported by today's solid factory orders report -- would re-embolden and restore the credibility of "New Era" thinkers, and by extension encourage investment into high-tech sectors, which is Hays' biggest overweight recommendation (followed by health care and consumer staples).

Whatever you think of New Era economics and/or Hays, his forecast of another three to six weeks of "progression" in the "baby bull" and even his upside targets don't seem as outrageous as they appeared just a week or so ago.