"Often early but never in doubt," appears to be the attitude of Don Hays of Hays Advisory Group regarding his most recent bout of optimism. On
Jan. 28, Hays forecast a sharp rally was in the offing and offered upside "guesstimates" of 11,200 for the Dow Jones Industrial Average, 1290 for the S&P 500 and 2250 for the Nasdaq Composite. Heading into today's session, the Dow was down 1% since Jan. 25 after falling as much as 2.9% on an intraday basis (Hays' offerings come out in the morning, so I started with the prior trading day's close). In the same time frame, the S&P 500 was down 3.3% on a closing basis after being down as much as 4.8% intraday. The Comp was down 6.1% on a closing basis after being down as much as 8.5%. Hays actually first wrote about a forthcoming "celebration rally" on Jan. 9, and the averages' performance are even worse starting from that date. I'm using Jan. 25 because that's closest to when I wrote about it. The point being, Hays' rally call has been a bust no matter how you slice it, as several Hays-bashers have noted via email (their glee barely contained). Still, the veteran market watcher refuses to capitulate and is no doubt buoyed by today's midday gains for the major averages. "I'm not ready to change my view of a few weeks ago ... if anything the recent repair of the 'wall of worry' makes it a possibility of a more dynamic rally in the months ahead than I had originally expected," he wrote on Friday, acknowledging familiarity with the story of The Boy Who Cried Wolf. In defending his call, Hays trotted out factors cited in the past, including the Arms Index, rising put/call ratios, and the relative strength of the S&P SmallCap 600 vs. the S&P 500, proof of the market's underlying strength, in his opinion. Today, he waxed effusive about the other big theme supporting his bullish view: The "magic of the technology revolution" and "the effects it will have on the economy and the profits in the economic recovery that is already in process." That sounds very late-1990s, I know. But Hays' view is that just because the tech-stock bubble burst, market participants shouldn't dismiss the salutary impact of tech-enhanced productivity. After the "huge reduction" in inventories, "any small increase in the economy and employment will produce not only an increase in production to meet the new demands, but also a leveraged increase to get inventories back to normal," he wrote. "If all this does occur as I expect, earnings will experience a much more robust expansion than fathomed, and that will work its magic on the perceived valuation of the stock market." (As an aside: Hays heaped praise on Gene Epstein for his "sweet spot" article in the latest edition of Barron's. He also mentioned the recent work on the after-tax affordability of housing by Northern Trust's Paul Kasriel. Ironically, both Epstein and Kasriel have been among the economists warning about the potential for inflation's re-emergence when the economy rebounds, although Hays didn't mention that tidbit, possibly because it doesn't fit into his worldview of tech-induced deflation.) For faithful readers, all this may seem familiar. Hays was beating the bullish drum all through last summer, much to the chagrin of his followers and to the joy of his many critics. By the time Sept. 26 rolled around, Hays' recommendation of 100% equities for aggressive accounts seemed a desperate act. Perhaps it was, but the market's rally from late September until early January seems to have reinforced Hays' belief that he's never "wrong" about the market, it's just that the market may sometimes be tardy in proving him right.