The stock market started off the first full week of the New Year with several wide swings which had become more normal in the last quarter of 2014. The weak start for the stock market and the further plunge in crude oil spurred a series of negative opinions on the stock market and the economy.
In a past column, I had featured this quote from Sir John Templeton “Bull-markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” So far, the current bull market has not seen a period of sustained optimism. These periods were part of the secular bull markets of 1949-1968 or 1982-2000, which were accompanied by gains of over 700% and 500%, respectively.
From the 2014 high to the 2009 low, the S&P 500 is up over 200%, which suggests there is still room on the upside. The market?s drop in early 2015 reminded me of previous panic drops as I suggested in last Wednesday?s Bearish Sentiment Creates Buying Opportunity.
To be confident that it was an important low, last week?s lows need to hold and the major averages must breakout to new highs. This is consistent with the A/D line analysis (see What to Watch). Several of the market leading sectors did rally sharply, consistent with a correction low.