Bad News For Bears!

Bear Markets Never, Ever, Ever Begin When The A/D Line Is Making An All-Time High!

by Ian Harvey

February 21, 2019

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The S&P 500 might still be a 7 percent rally from a record high, but some of its components have already scaled to new heights.

More than 40 S&P 500 components have recently made a 52-week high, the highest number since December 3.

And yesterday the Nasdaq Composite ended the day just above the flatline at 7,489.07 to notch its eight consecutive gains.

Stocks have been on a tear lately in part because of the Fed's perceived pause on rate hikes. The Dow and Nasdaq are riding an eight-week winning streak, while the S&P 500 is up seven of the past eight weeks. Since the Fed's meeting in January, the major indexes are all up more than 4 percent.

Also, stocks’ surging lately is due, in part, because of the Fed's perceived pause on rate hikes, as well as developments on U.S.-China trade talks; with a new round of negotiations launched on Tuesday.

Here are several areas that reflect “the bad news for bears” scenario…..

Corporate Earnings…..

Betting against the stock market because of a weak outlook for corporate earnings might not be the best strategy.

A negative earnings outlook does not necessarily translate to stock market losses — with recent history suggesting that equities actually have performed quite well as companies and analysts are trying to tamp down expectations for the future.

An example of this is the last earnings recession in 2015-16 where the stock market bottomed in February 2016 even though the negative trend in earnings revisions continued all the way until December. The market rose 20 percent before the earnings outlook began to turn.

Therefore, the current situation would translate to the bull market continuing after a rough 2018. The advice is to start adding to your equities as, on average over the past four negative earnings cycles, stocks started rallying seven months ahead of a reversal, with the average gain 30 percent.

Panic Buying…..

Stocks could get a short-term boost as fear of missing out on gains leads more investors to invest more money into the U.S. equity market. It seems that a “'panic buying' mood”, with purchases by investors who had been lagging the broader market, has strengthened.

This surge comes after a massive sell-off in December that briefly sent the S&P 500 into bear-market territory on an intraday basis. But now, there is an opportunity now for short-term trading strategy of buying on dips from end-February to beginning-March targeting a subsequent return-reversal.

The Advance/Decline Line…..

One widely used signal of the health of the stock market has hit an all-time high, potentially setting the stage for a further rally by U.S. equity benchmarks.

Among technical analysts, the A/D line is the most widely used indicator measuring market breadth and represents a cumulative total of the number of stocks advancing versus the number of stocks declining. When the A/D line rises, it means that more stocks are rising than declining, and vice versa.

Breadth as measured by the advance/decline line has been improving almost every day since the December 24 bottom. That A/D line is now essentially near the historic high it hit late in 2018.

The New York Stock Exchange’s advance/decline line touched an all-time high on Wednesday. The number of stock gaining ground is outnumbering decliners 1,673 to 1,079 on the NYSE and 1,492 to 1,168 on the Nasdaq, while volume in advancing stocks represents 64.8% of total volume on the Big Board and 64.5% of the Nasdaq’s total volume.

In Conclusion…..

Other internals are also strong: New highs are expanding, selling pressure is low and the Dow Jones Industrial Average and the Nasdaq are riding eight-week win streaks.

The Dow Jones Industrial Average is up 18.8% from its Dec. 24 low, the S&P 500also has gained by about 18%, and the Nasdaq Composite Index has advanced 21% as well.

At the moment, the situation is looking like “bad news for bears” as the bearish case is falling apart as the expansion of upside breadth continues to point towards higher stock prices in the short to intermediate-term perspective.


Therefore, if you wish to take advantage of  "the bad news for bears", and become part of the profitable action just CLICK HERE.

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Best of Trading,
Ian Harvey
Director of Stock Options Made Easy


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