Fusion IQ’s Kevin Lane:
Equity markets are a funny beast. If you waited to invest only when all conditions lined up perfectly you would never invest. There always seems to be some sort of fly on the ointment. At the 1998 low it was a global currency contagion that clouded the buying opportunity. The rally off the 2002 bottom it was the hangover from the internet bubble that made investing a bit scary. More recently, in 2009, it was the psychological damage and fallout from 2008 financial crisis and even more current, the European debt crisis. However, in each and every one of these confidence crises, there were large up moves in equity markets. Part of the rationalization for the turnabout at each of these troughs was the markets had discounted the most dour outlooks and mass distribution had already occurred. So while the various quantitative easing moves may not have been the best backdrop for rational investors to buy equities, the resulting move up in equity prices can’t be argued.
As an example the chart below shows the hiring in the private sector. As quickly scanned, it is easy to see private sector hiring fell off a cliff during the 2008 financial crisis and while it has recovered, it is nowhere near where economists, money managers or the public want it to be. However if an investor waited to be more comfortable with private sector hiring to invest you would have missed a 100% plus up move off the lows. We pen these thoughts to reinforce the idea that the market will react to different data points in different cycles but the one thing that is consistent is the technicals. So whether a bull or bear is being driven by a macro event, earnings, valuation, etc. etc. the technicals will always look consistent; in bull markets, more new highs consistently than new lows, more advancers than decliners, greater consistency in up volume than down volume and the reverse conditions for a bear.