Dow Jones bull run on final leg, warn analysts
North American equity investors watch out, the Dow Jones Industrial Average is on the third and final leg of its bull run.
Technical analysts at HSBC James Capel warn a bear market lies ahead but it is too early to get worried.
The argument goes that further gains could be made through the November presidential election, followed by a short honeymoon, but a bear market is in the offing, beginning early next year.
Some sectors are already dying even as the index appears to be set to go higher.
Indicators measuring overbought and oversold conditions are looking black. These try to get a measure of where the index is likely to go through looking at the relationship between advancing and declining stocks, along with short term up and down trends in stocks.
'The indicators deteriorated alarmingly and, indeed, climactically as is usual at the end of a setback, or consolidation period,' analysts Robin Griffiths, Deborah Boys and Fiona Bolt say.
The Dow transport and utilities indices both went below their 200-day moving averages and have stayed there.
'Even the well performing Dow industrial index has only 13 per cent of stocks in uptrend and 27 per cent in down,' say the technical trio.
The saving grace in all this is that the majority of stocks are in neutral and they can easily be placed on an uptrend by a small rally, as the market girds for the third leg in the present bull run.
'From a point of cycle view this is too soon to be breaking into the bear phase,' the analysts say.
There is still time to make money. But time is running out for the bulls.
However, the technical trio argue the chances of a bear market kicking off this year are low. 'If you were Bill Clinton or Alan Greenspan would you let it go wrong now?' they said.
The argument goes bull markets always climb a wall of worry, but this one can die only if corporate America really goes into a slump and depression.
'If that happens then we are all in the wrong business, there is no where to run to.
'If the USA sneezes it will be others that catch the worst cold,' say the analysts.
According to data from Yelton Fiscal, a technical analysis company, the average duration for a bull market is 32-plus months.
The present bull run originated in December 1994. This leads to the suggestion the present bull run could peter out next year.
The average bear market duration is less than half that of bull runs at 14-plus months.
