February Month In Review:
This month marks the one year anniversary from the March 2009 bottom in the stock market. Each of the major averages have enjoyed tremendous gains over the past 12 months as the global economy continues to recover from the worst simultaneous bear market and economic recession since WWII! After that tremendous run, the major averages have spent most of 2010 consolidating their recent move. The latest correction began on January 22, 2010 after all the major averages sliced below their respective 50 DMA lines on heavy volume and we are now waiting for a new follow-through day to emerge.
It is very easy to adopt a gloom and doom mentality towards the recent action in the market. However, it is very important to step back and put the recent correction into proper context before passing judgment. As of this writing, the deepest the market has pulled back since the March 2009 bottom was -9% from its post recovery high. This is a bullish sign for this new bull market since every time the market has pulled back the bulls have promptly showed up and quelled the bearish action and defended support. Second, history shows us that most bull markets last anywhere between 18-36 months before they fail. Therefore, the fact that we are only beginning our 12th month bodes well for this somewhat young bull market. Third, and perhaps most important, nearly every government across the globe stepped up and unanimously infused an unprecedented amount of capital into the global economy. This unified action saved the global economy from entering a deeper recession and laid the foundation for this robust rally.