
The Dow Will Trend Higher, So Ignore the Predictions of Doom
Since the market meltdown in August, the bears have become emboldened and eager to push their predictions of impending doom. These spin doctors are masters of spreading irrational, financial fear.
To bolster these claims, they rouse perma-bears such as David Tice to confirm their calls for a market crash. But Tice would not have sold his Prudent Bear fund at the peak of the financial crisis if he adhered to this outlook.
Fast forward: Many stocks have stabilized and even regained their late-summer losses. This recent turn of events shows that the only service fear-mongering bears offer is an investment strategy that you shouldn't follow. For example, instead of panicking with the masses during the market selloff, the wiser option would have been to purchase blue chip companies that were trading significantly off their highs.
The technical outlook that favours higher prices
The Dow Jones Industrial Average is undoubtedly trading in the overbought ranges. Logic dictates that some bloodletting is needed before the Dow moves higher, especially as the talking heads are already frothing at the prospect of the Fed raising rates in December. This noise over interest rates will provide naysayers with the perfect ammunition to create a stir that the world is going to end. They're missing that at most the Fed would raise rates by a mere .25%. A weekly close below 17,700 should provide the backdrop for a test of the 16,800-17,000 ranges, with a possible overshoot to the 16,500 ranges.
Mass psychology dictates that the so-called professionals are as clueless as the masses. Instead of listening to them, it's better to heed your own common sense. From its high to its most recent low, the Dow shed roughly 14%. That's a pullback not a catastrophe.
Fundamental reasons why the market is more likely to trend higher than crash
The Fed has indicated that it would raise interest rates many times. The market could care less whether interest rates rise or not.
Corporate share buyback programs are on steroids. It is estimated that stock buybacks and dividend payments could top $1 trillion this year, setting yet another record. Many corporations that have sat on the sidelines are now set to join the share buyback bandwagon. This will add fuel to the bull market.
A large number of individuals are sitting on the sidelines. The latest sentiment survey from AAII reveals that 42% of individuals are neutral. These chaps will wait until the last moment to jump in, and they will not see the benefit. Clearly, the crowd is far from euphoric and bull markets always end on a euphoric note. This is one of the most hated bull markets in history, and it will go down as one of the longest bull markets ever.
Investors have limited choices. They can speculate or park their money in treasuries and earn miserly rates of return.
While not cheap, stocks are not overvalued. When the markets crashed in 2000, valuations were at an extreme level even for solid blue chip stocks.
So now that the Dow has recouped a good portion of its losses, what does the future hold?
While a significant pullback is a possibility, a crash is far-fetched. Anyway, strong corrections present buying opportunities. That said, the market remains strong and should continue its bullish course.
This article was prepared by Sol Palha senior analyst at the Tactical Investor an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.









