The Business Cycles – be OPTIMISTIC

1) The average stock is down more than 60% over the past thirteen months

2) The housing market is still reeling and foreclosure activity is rising.

3) The price of gas is skyrocketing.

And yes, this too will pass, and the economy and stock market will begin a new expansion and sustainable bull market, as all business cycles have.

I believe the market has more than discounted all the bad news out there and is putting the finishing touches on the bottoming process for stocks.

Yes, a significant advance is set to begin that will take stocks much higher in the year ahead.

FOUR KEY REASONS TO BE OPTIMISTIC TODAY

1. Low Consumer Confidence = Profits Ahead

2. Bull Markets Always Follow Bear Markets

3. Lower Oil Prices Ahead

4. Record Cash Levels on Sidelines

I would like to throw the light on each point in brief.

Reason #1: Low Consumer Confidence = Profits Ahead

This may at first sound a bit counterintuitive, but the good news is Indian consumers’ level of confidence has reached a 28-year low. How can that possibly be good news? In the history of gauging consumer confidence, whenever attitudes tumble to this pessimistic extreme, stocks have already greatly digested and discounted the bad news.

BULL MARKETS START WHEN CONFIDENCE IS LOW!

Reason #2: Bull Markets Always Follow Bear Markets

To add perspective to current market conditions, I have seen that past bull and bear market cycles since 1960. Since then, there have been 11 bear markets with each followed by new long term bull markets.

There are two key points about bear markets I would like to highlight: First, investors are always faced with intensely negative news and many times a “crisis atmosphere” which pushes stock prices temporarily lower; second, bull markets begin in the middle of all the bad news. Historically the bull markets rewarded investors with gains on average exceeding 90%.

Reason #3: Lower Oil Prices Ahead

A major factor influencing consumer pessimism is oil prices have doubled in the last year. At every level of spending, consumers are feeling pain of higher energy costs, whether it is filling the car up with gas or buying groceries. Any relief from spiraling energy costs would be a major step toward improving investor psychology. Looking at our chart of the 120-year history of oil prices, clearly the recent price gains are at unsustainable levels. The chart depicts oil prices and our long-term momentum tool (6 year rate of change) showing only two other times in history oil prices have been this

stretched. Each time was followed by a significant price decline. While others are projecting $200 oil, our tools and research suggest an important turning point forecasting lower prices. We think the most likely outcome will be a significant decline in oil to $100 or lower before the year is over. This positive surprise for investors will be a major catalyst for the next bull market lift-off.

Reason #4: Record Cash Levels on Sidelines

Another positive sign is the enormous cash pile investors have sitting in money market funds. This record amount of cash is fuel for the next bull market advance. A little improvement in the news, an end to the oil price spike, and a shift in investor attitudes toward optimism will open the floodgates of money fund assets flowing back into stocks. A virtuous cycle can begin once again.

These are my observations about the next bull run. Invest stock-wise only.... Time to add some value stocks in your portfolio in small chunks, not a bulk deal.. small small purchase only....