The Dow index defies the bears again.

Being ignorant is not so much a shame as being unwilling to learn.
Benjamin Franklin

Fear sells, and like misery it demands company.  The so-called crash in August triggered dozens of hibernating bears to emerge from the woodwork. Rested from the last severe beating they took, they are ready for another healthy dose of pain. In their quest to push the fear factor a notch higher, celebrity perma-bears such as David Tice are brought out to confirm that all is not well.  If the markets were destined to sink into the gutter, David Tice would not have sold his Prudent Bear fund at the peak of the 2008-2009 financial crises.  Then you have many others taking out expensive ads calling for the end of the world. A close look will reveal that these same chaps were bullish once an upon a time and have now jumped ship.  On each occasion, these chaps were right for a brief period. The better option would have been to open long positions in top companies and let your profits soar.  If something sounds too bad to be true, then it probably is and vice versa.

Even though the markets pulled back very strongly in August, these fear mongers are still pushing the same old theme.   Avoid these individuals like the plague. From a contrarian perspective, the only role they play is to inform you of what you should not be doing.   We find it quite amusing that even though the markets have virtually recouped all their losses, these guys keep stating that a crash is in the works.

A recent report illustrated that roughly 90% of all articles published in the Washington post have a negative connotation.  With the election cycle underway and as the candidates jockey for the head position of Jackass, the airwaves will be blasted with even more negativity.  Negativity attracts even more negativity; expect every negative story to be blown out of context while positive events will be marginalized.  As far as we are concerned, this is a great development, for negativity is a precursor to panic and panic is the precursor to opportunity.

We believe the markets will trend upwards for the following reasons:

• Markets do not top off without Fed intervention.  While the Fed has been hinting forever that they are going to raise rates, so far they have done nothing.  Even if they do muster the courage to raise it by a paltry 0.25%, it will be treated as a non-event.  History illustrates that markets trend upwards, for more than two years after the Fed’s start hiking rates.
• Our trend indicator is bullish, we have never seen a market crash when this indicator is bullish. This indicator blends technical analysis with Psychological indicators and has not flashed any signs that a bear market is about to emerge.
• The crowd has to be euphoric and currently the sentiment is not even close to Euphoric.   In fact, the number of individuals sitting in the bullish camp and the neutral camp are dangerously close.  Clearly, a lot of individuals are still sitting on the sidelines; this is one of the most hated bull markets in history. 
• In case you missed it, the stock market just emerged from a strong correction. From peak to low, the Dow shed over 14%. Hence, speculative forces were purged, and the markets are ready to trend upwards.
• Markets also tend to top due to overvaluation and a hawkish Fed.  Both of these factors are a non-issue. While the markets are not cheap, they are certainly not overvalued.  When the markets collapsed in 2000, valuations were absurd, we are nowhere next to those levels right now.
• In this ultra low rate environment, speculators are rewarded, and savers are punished. There are not too many choices out there for investors.  You can park your money in 10-year treasuries and walk away with a paltry 2.23%, or you could put that money into many blue chip stocks that yield over 2% and offer you the option of walking away with capital gains.  In fact, we warned our subscribers in July before the markets collapsed to view all strong pullbacks as buying opportunities.  Those that used the correction to open new positions are already holding onto gains more than 10% and some cases as much as 30%.
• Corporations are plowing enormous amounts of money into share buybacks. In fact, it is estimated that stock buybacks and dividend payments could top $1 trillion for the first time.  Additionally a slew of corporations that have not purchased their shares over the past few years are joining the share buyback bandwagon.
• At the Tactical Investor, Mass Psychology plays a central role in all our analysis. From where we stand,  sentiment levels are going to take some time to hit the euphoric stage. This market has a lot more room to run.  This market will run a lot higher than even the most zealous bear could ever dream off.  Every strong pullback should be viewed through a bullish lens; the stronger the pull back, the more willing you should be to jump in.  

What’s next for the Dow Industrials?

The markets have covered a lot of ground over a very short period of time.  Thus, we feel that it’s time for another bloodletting stage.  Ideally the Dow would come close to testing its lows again, and put in a higher low.  This will set the stage for a nice strong year-end rally, that should continue well into the first quarter.

He was so learned that he could name a horse in nine languages; so ignorant that he bought a cow to ride on.
Benjamin Franklin