Similarities to 2003

• Posted by Joe Fahmy
• on December 29th, 2009

Two weekends ago, I called for an upcoming rally in the stock market (click here to read). Many people have asked me the reasoning behind this call. First and foremost, I base the majority of my decisions on how stocks are acting, especially the leaders. Over the past few weeks, I haven't seen much heavy selling in leading stocks. In addition, I am noticing some similarities to 2003:

1) In 2003, we bottomed in March after a vicious 3-year Bear Market. In 2009, we bottomed in March after a brutal 18-month Bear Market. I'm not saying we will go on to have a 4-year Bull Market from here like we had in 2003; however, many nervous bulls (myself included) feel this rally is going to end any day now. There is a possibility we could continue higher for a while, especially since the market tends to fool what the majority is thinking.

2) The doubters. After I posted my recent call for a rally, I couldn't believe the angry responses I got! So many people telling me about oversold indicators, how the market is "due" for a correction, how the economy is so bad, and how everything the government is doing now will lead to problems down the road, etc., etc., etc. My best advice is to simply "focus on the stocks" and avoid all the "noise" you hear on TV. Do your own research, have conviction in your ideas, and let the market tell you if you are right or wrong.

3) Liquidity! The Fed kept interest rates low to help boost an economic recovery in 2003 and they are doing the same thing now in 2009. The chart below shows what happened at the end of 2003 and into early 2004. It's possible we could see a similar scenario driven by the vast liquidity, the "beginning of the year" money coming into the market, and a run in anticipation of strong earnings over the next 3-6 weeks.

You may have to click on each chart and expand your browser to read the annotations, thanks.

 

 

As I mentioned yesterday, I am still expecting some consolidation/pullback from the recent +3.5% gain in the NASDAQ the past 5 days. Overall, I remain bullish and will look for decent points to re-enter or add to my positions.

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