For the past several months I’ve
been reporting on how the general market sentiment has tilted notably bearish.
Conventional market wisdom – as I’ve suggested ad nauseam – says that’s a good thing.
Charles Dow, one of history’s great market technicians – and
co-founder of Dow Jones & Company, inventor of the Dow Jones Industrial
Average, founder of The Wall Street Journal and the developer of the Dow Theory
(which remains the foundation of technical analysis) – identified three major
trends in a market cycle: The Accumulation Phase, the Public Participation
Phase and the Distribution Phase.
The problem with the growingly popular notion that the
current bull market has about run its course is that, typically (and this has
been my observation over the past 32 years), when a bull market has truly run its course, it’s anything but
the popular notion.
John J. Murphy, in his outstanding book TechnicalAnalysis of the Financial Markets, describes the beginning of Dow’s final major trend as
follows:
The distribution phase takes place when newspapers begin to print increasingly bullish stories; when economic news is better than ever; and when speculative volume and public participation increase.
While we’ll remain open to all possibilities, the huge optimism
that would normally foster huge pessimism among the “smart money” – and usher
in the next major bear market – is, yet, nowhere to be seen.
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