The bearish chorus just got one more very important additional member: James Stack, editor of the InvesTech Research. In a recent article Stack writes that while the cyclical bull market may still be young compared to previous historical cyclical bull markets, he is concerned that within that short time it has covered so much ground that it is susceptible to an ‘imbalance’.
Stack notes that this bull market is only 22 months old but it has already exceeded in gains (90.4%) the gains of all but one bull market in the past 80 years that spanned up to 36 months.
Source: Jim Stack (InvesTech)
We are entering the third year of the Presidential Election Cycle, which is historically the most profitable—on average. That’s the good news. The bad news is that years one and two of this current cycle have been exceedingly generous to investors. Such high returns reduce the odds that this will be a stellar year on Wall Street.
The Presidential Cycle has been exceedingly generous to the market in the past two years. This makes Stack question whether it can continue, even when we are entering the third year – the most profitable from a historical pattern. His conclusion is that it can’t so he is expecting a single digit return for 2011.
I pay attention to Jim Stack because time and time again he has not only proven himself to be unfettered by bias and agnostic in his approach, he has also been able to correctly time inflection points in the market, catching both major tops and bottoms. I don’t pretend to know what is going to happen but when I see a growing chorus of very smart people agreeing with each other based on separate modes of thinking, the probability that they are correct increases exponentially.