The case for a continuing bull market eight years out from the GFC

With all of the fanfare around the Dow Jones making new highs and the S&P 500 with a valuation of 20 trillion dollars, asset managers are busy crunching numbers to see if any value remains, and traders are reading reports of market valuations being stretched. This is not to mention the prophets suggesting that the next crash is just a fat finger away.

World Bank
Source: Bloomberg

To put the market in a technical perspective, commodity markets are working in a primary up trend. Copper has now crossed $6000 a ton on the LME, alongside the equities markets which are also in a primary up trend.

The ones that really matter like the S&P 500, Dow and Aussie 200 are all making new highs week after week, and even the China A50 has started to trend higher. A primary market trend is observed in the longer time frames of weekly and monthly charts, but not in the daily as the smaller time frames carry too much day-to-day market noise and rumour.

Going back to basics, the Australian markets are currently reporting with a mixture of hits and misses. However, the market is moving higher, so are animal spirits in play? 64% of Australian companies are above the 20-day moving average and within that statistic, 15% of the Australian market is trading at a four-week price high. These are certainly not extreme numbers.

The forward earnings per share for 2017 in Australia is expected to increase between 13-18%, which will really show up in the August – September reporting season. All of that cost cutting and rationalization over many years is starting to pay off. Rio Tinto (RIO) is announcing an increase in its dividend and [shares:FMG -AU|FMG] has been paying down its debt pile, only to have Moody’s lift its corporate bond rating to BB+.

On the back of rising commodities prices and lean operating structures, the markets are well placed for further growth. If you bring in inflation now starting to work its way towards 2% on a global basis and rising real estate prices adding to the bottom line valuations of business enterprise: we may have an animal spirits bull market underway.

Caterpiller

Caterpillar is often the proxy for global growth, and it’s clearly showing a primary trend underway.

Global growth is just getting underway and while it’s never a straight line, the primary trend is up across most asset classes. History shows us it’s the inflation tool that governments use to shrink the perceived value of debt balance sheets.

ASX

A strong basing pattern in the Aussie 200 (marked with 1, 2 and 3) established during September 2015 to April 2016 became the catalyst for the current primary up trend. Late 2016 brought in an ABC corrective move with support at 5040. Currently the A200 market is trending towards the 6000 resistance level from 2015.

With earnings on the rise in a leaner and more efficient market, this technical target looks achievable in the very short term.

NB: Sentiment in the market place is looking at growth, and participants are trading the market higher with commitment of traders at the highest net long in years.

When will it end? The usual suspects could bring it all to an end. Big bear markets are born out of a loss of confidence with excessive margin lending and are usually set off by a collapse in real estate.

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