In our Schaeffer's Media Outtakes series, Bernie Schaeffer dissects the news, using contrarian analysis to provide a unique take on the market.

"The bull market, it appears, has legs. Wednesday marked the fifth anniversary for the bull market, according to Standard & Poor's. Both the S&P 500 and the MSCI World index hit their lows for the last cycle on October 9 2002. They have risen with some bumps ever since. The S&P 500 has doubled in that period its price is up 101.5 per cent, for a total return of 120.6 per cent ... Is a five-year old bull getting long in the tooth? By S&P's reckoning, there have been 11 bull markets since 1942. Their average length was 56 months, so at 60 months this bull is getting old. But then the last bull market, subject of many rosy comparisons recently, lasted 113 months. A trickier question is whether we are in a bull market at all. The S&P has only recently surpassed its high from the last bull market, and is still only 2.5 per cent ahead of it. Some bears believe this is just a pause in a longer bear cycle ... But in real life, it is easy to tell the difference between a bull and a bear. Not so in the markets. Five years ago, very few people spotted that the bear had grown horns. How much more life in this bull?"
--- (The Financial Times "The Short View: Bull market?" 10/10/07)

Schaeffer's addendum: In an attempt at the vernacular of the Financial Times, I must confess that I find it "rather remarkable" that anyone would have much of a question about whether we are currently in a bull market. "How much more life in this bull?" is a legitimate question, to which I would respond "Much more life than the cadre of naysayers seems to believe."

But in the spirit of "I know a bull market when I see one," there is no question that we are right now in a bull market. The accompanying monthly chart of the S&P 500 Index (SPX - 1,573.06) tracks its performance since 1993, along with its 10-month moving average (equivalent to the popular 40-week or 200-day moving averages that are often used as lines of demarcation between bull and bear markets). Note that we have the clear bull market period from 1995-1999, the transition period in 2000, the clear bear market period from 2001-2002, and the clear bull market period from 2003 to date.

I think the question raised in this FT article is endemic of a degree of anecdotal skepticism about the sustainability of this rally off the August bottom that has taken us to new highs in the averages. The bears, who just a couple of months ago were convinced they were finally in charge, have been stunned by this turnaround and, as I've been describing it to our research staff, "They want their bear market back." Even the stock analysts, who should have an agnostic view on the overall market, seem to be trying to call a top here. To quote from a memo today from my colleague Bob Becks:

"I wanted to take a closer look... in light of the amount of recent downgrades versus upgrades over the last several days according to Briefing.com. Recently, there have been several days in a row where the number of downgrades has been several times higher than the number of upgrades. It seems like analysts, to a noticeable degree, might be calling for a market top over the next several months, that is if their recommendations are supposed to look out several months. Possibly we are at a time where their expectations are rolling over similar to what most recently occurred in late April, and again, to a much larger degree from Sept '06 to Dec '06 when the percent buys rolled over. Those episodes both occurred when the market was pushing to new highs, similar to what is going on today. Looking at the chart, you can see that they both proved to be great buying opportunities."

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