Posted by: Bevan | December 22, 2011

Should we be Bulls?

Contrarian investing or trading is a fascinating subject, and it is true that often especially at extreme betting the opposite way on the market to the majority is what the small number of winners in the markets do (e.g. those betting against mortgages in the US four or so years ago).  Alexander Elder puts out a free newsletter every month which is interesting reading.  I recall reading with amusement how the market was going to turn around in early 2009 when everyone was a bear.  At the moment with all the problems in Europe, threats of downgrades for the US etc it seems as though there is no light at the end of the tunnel.  Contrary to virtually every commentator and chart analyst I read, Elder is bullish on the market – “I think that the correction which I first identified in my May letter is nearing its tail end and the bull market is getting ready to resume.  Close, but not yet … “.  Elder has stated that the past few months have been a short term trader’s market, however that once the uptrend resumes we should be switching to trend following mode.

I actually take his point, if you analyse the S&P in his terms, identifying an uptrend by making continued higher highs and higher lows, it doesn’t look quite as grim (my markings):

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