Can this amazing stock bull market keep on rolling?

I recently came across this maxim that is especially relevant to trading:

“The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts.”  Bertrand Russell

Despite an onrush of gloom-and-doom disaster predictions from various gurus in recent days, shares continue their trek northwards – much to their astonishment I am sure.  Maybe the latest rallies are down to these breathless promotions (you can be sure many of them are promoting something).  Of course, we have always had such disaster scenarios – here are a few from 2013 and 2014 when the Dow was trading around the 14,000 mark (it is up 50% from then):

The US public has been very gun-shy and skeptical about the entire bull run since 2009 and bullish sentiment has rarely pushed above the historic norms.  I like to follow the AAII dataset that weekly polls its ‘mom ‘n pop’ investor base.  Here is the latest :

With the averages pushing up into new highs almost on a daily basis, the bulls have got the message after eight years that we’re in a bull market and  rose a chunky 8.5% from last week’s 27% bulls to the present 35% – but this is still under the historic average!  And the bears are still hovering around their historical average.  See what I mean?  This lengthy bull market has been one of the most disbelieved (by the general public and hence MSM) in history.

Many point to the highly ‘over-valued’ markets – here is Buffet’s famous measure of value – Company Earnings/GDP

We are at the second highest valuation ever.  Shares are definitely not cheap. And the leaders of the pack – the infamous FAANG Gang – had a severe jolt on Friday with Amazon down 8%.  This has encouraged even more to proclaim the top has been reached and the bust is just around the corner.

So my contrarian questions is this: can the rally be sustained – and even grow in strength?

For clues, I look to my favourite trading index – the Dow.  Although only containing 30 issues (the 30 largest US caps), it only contains Apple out of the FAANG Gang with most issues sporting a more earth-bound valuation based on P/E.

For some time, I have had two competing Elliott wave scenarios to predict the future course.  Both of them called for the price pattern that has actually been traced out since the 1 March high.  So far, so good.  But today, with the Fed news out, the market has reached a crossroads.  This is one of the options:

Wave 3 put in on 1 March and wave A is a three down.  The rally in the current wave B has carried to 21,375 which is 1.25 times wave A – not quite a Fibonacci ratio.  But if the market is going to turn down, it had better get its skates on.  At first, I preferred this option because when wave C of 4 terminates, it would be in similar proportion of wave 2.  We are in wave B which will turn into a big wave C down.

But here is the other option:

I have wave 4 in place on 19 April on a textbook A-B-C. I have waves 1 and 2 and since the wave 2 low on 18 May, we are in wave 3 which should be long and strong.  Already, it has pushed up above my upper trendline (they are not tramlines because lower line has only two touch points).

Of course, this option is the one which satisfies the notion that the stock market rally will continue for some time as this third wave completes.  If this pans out, expect a wave 4 down and then the final wave 5 before the top is reached.  But the current wave 3 could stretch much farther than most could expect.

But with the trend still firmly up,  I am favouring the latter option and will only seriously question it if the market trades well under the upper blue trendlline.  Today’s Fed non-news made little impact.

Bitcoin hits $3,000 – and backs off

I have briefly mentioned the Bitcoin Bubble previously and with the market pushing into new highs in the $3,000 area, I thought you would like to read a pretty comprehensive review of the cryptocurrency scene here.  Make sure you read the comments of VB who seems to know a great deal of the potential drawbacks.

It seems the Chinese are the biggest players and as we know, this nation holds the world’s greatest gamblers.  They seem to have bought into the story and who knows – Bitcoin may keep rising and rising for ever.  But if they ever start to fall out of love with it, the falls will be breathtaking.  Maybe that is starting now with latest trade almost $500 off the high.