All-Time High Stocks: This is a bull market you know

Last week's quick selling sparked the usual top calling. I think it's more useful to assess the current conditions rather than guess what the future holds. My objective is to separate the market signal from the noise. I don't have the time or genius to do anything fancy so I boil it down to this -- markets can only be in one of three stages: (1) bullish trend, (2) bearish trend, or (3) sideways range. Which one are stocks in now?

I think this is clearly a bull market based on the following price-based evidence:

The US and Canadian indexes have all printed multi-year highs within the last couple weeks.
Both markets have upward sloping short-term and long-term moving averages.
Leading stocks like APKT continue to hit new all-time highs.

In addition to my own perspective, other longer-timeframe trendfollowers that I respect are long stocks. Decision Moose, for instance, continues to be fully invested in US small caps (IWM).

Whether it's an early bull, a late-bull, a secular bull, a cyclical bull, or something else is beyond my analysis -- either way, it is a bull. At times like this I think it is fitting to revisit the advice of "old Partridge", a character in Jesse Livermore's book Reminiscences of a Stock Operator.

The customers, who were all eager to be shoved and forced into doing things so as to lay the blame for failure on others, used to go to old Partridge and tell him what some friend of a friend of an insider had advised them to do in a certain stock. They would tell him what they had not done with the tip so he would tell them what they ought to do. But whether the tip they had was to buy or to sell, the old chap's answer was always the same.

The customer would finish the tale of his perplexity and then ask: "What do you think Iought to do?" Old Turkey would cock his head to one side, contemplate his fellow customer with a fatherly smile, and finally he would say very impressively, "You know, it's a bull market!"

Time and again I heard him say, "Well, this is a bull market, you know!" as though he were giving to you a priceless talisman wrapped up in a million-dollar accident- insurance policy. And of course I did not get his meaning.

Mr. Partridge was familiar with the allure of trying to time the short-term swings of stocks, i.e., trying to sell at each short-term top and buy back on corrections. His advice is pertinent to the type of action we saw last week. In this excerpt a customer at the bucket-shop offers a tip to old Partridge, telling him to sell a stock and buy it back after the upcoming correction:

"I know this is a bull market as well as you do. But you'd better slip them that stock of yours and buy it back on the reaction. You might as well reduce the cost to yourself." "My dear boy," said old Partridge, in great distress "my dear boy, if I sold that stock now I'd lose my position; and then where would I be?"

But Partridge wasn't having it. He knew that although it is tempting to try profiting from every short-term swing, it isn't where the big money is, and it didn't fit with his trading style. Here is Jesse Livermore's reflections on it:

What old Mr. Partridge said did not mean much to me until I began to think about my own numerous failures to make as much money as I ought to when I was so right on the general market. The more I studied the more I realized how wise that old chap was. He had evidently suffered from the same defect in his young days and knew his own human weaknesses. He would not lay himself open to a temptation that experience had taught him was hard to resist and had always proved expensive to him, as it was to me.

Don't get me wrong, I know there are traders who do make money on the short-term swings, but that is not my trading strategy. Hence I continue to sit tight in my existing positions with their trailing stops and watch for new opportunities.

That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.
--Edwin LeFevre (Jesse Livermore)

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