From the pen of Karin Iten…

Dear Investment Academy Reader,

Just over a year ago, the stock market hit rock bottom.

Hardly surprising, given the mass of bad news: The collapse of several so-called “too big to fail” American firms, soaring unemployment, a sagging real estate market, out of control global government debt, bailouts galore and practically zero consumer confidence.

What was surprising, however, was the wicked curveball that the stock market then tossed out. Far from trundling sadly along the bottom, global stocks embarked on a remarkable 13-month upward surge.

To this day, the rally is still in full swing. Not many people predicted this. But one year ago, Louis Basenese did. So what's he saying now? Read on to get the seven reasons why he believes the bull market could continue...

Seven signs this bull market will continue

This time last year, nobody wanted to believe that the fledging rally would continue. Pessimism prevailed. And they were dead wrong.

I believe the same thing is about to happen again...

Déjà Vu all over again

Even after 13 months of gains, countless investors still have no faith. They doubt the current bull market is sustainable. So much so, they even refuse to call it a bull market.

According to 249 news headlines over the past month, it's a “melt-up”. (Melt-up? Could there be a phrase that oozes with more skeptical connotations?)

I've also heard it labeled “a cyclical bull market in a secular bear market”. Puh-lease! If a 54.24% rise for the JSE doesn't qualify as a full-blown bull market, nothing does.

If you share these doubts, stop kidding yourself. We're in the midst of an historic bull market. One that's very likely to continue. And here are seven reasons why...

1. It's all about the economy, stupid!
Forget about a double-dip recession cutting off this rally at the knees. The latest economic data points to a recovery that is real and sustainable.

~ Take Warren Buffett's favorite indicator, for example – railroad freight traffic. It just hit its highest level since November 2008 – up 16.5% in the last week of March.

~ The ISM Manufacturing Index touched a six-year high last month.

~ New orders for manufactured durable goods increased for the third consecutive month, too.

True, the global unemployment picture still stinks. But it’s a lagging indicator. By the time it improves dramatically, the market will have left you in the dust.

2. The "Sesame Street" indicator is bullish
Oscar the Grouch loves trash! So do investors.

Case in point: The stocks that got battered and bruised the most during the market's downturn are the best-performing ones coming off the bottom. Namely, financial stocks.

Of course, this typically happens in the first leg of a bull market. Junk outperforms high-quality companies. But it's a well-documented fact that investors eventually start rotating into undervalued, steady performers.

There's plenty of history to back this theory up, too. That’s exactly what happened after the early 1980s recession, the early 1990s recession and the early 2000 downturn, as well. The fact that it hasn’t happened on this occasion yet, means there's plenty more upside ahead, as high-quality companies eventually take the baton.

3. Technically speaking...
Although I favour fundamental analysis over technical analysis, that doesn't mean I ignore technicals completely. After all, we never want to fight the trend. And technicals point to this rally continuing, too.

Take the advance/decline line, for example. It basically gauges the strength of a rally by measuring how many stocks are participating in it (also referred to as the market’s “breadth”). The line is currently very bullish. The last three times it's been this bullish – in 1962, 1975 and 1982 – the market kept charging higher, according to Dan Sullivan of The Chartist. All the while, investors doubted the sustainability of the move.

Then there's the common Wall Street wisdom to "never short a dull market." In other words, don't bet on a downturn just because it's been a while since we had one.

4. Bring on the buybacks
Companies are spending the lowest proportion of their money on stock buybacks in almost a decade – 28% of operating profit. At the same time, they're sitting on record amounts of cash – almost $1 trillion.

The good news is we've seen a pick-up in buyback activity in recent months. Mizuho Financial Group expects American companies to double their stock repurchases this year - resulting in a total of $235 billion. We're nowhere near a top, either. In 2007, companies spent almost $600 billion on buybacks.

Remember, buying back shares reduces the number of shares available and increases earnings by share. As a result, stocks often climb higher.

Long story short... the speed of buybacks is accelerating and there's ample cash available to fuel many more. That definitely points to higher share prices ahead.

5. Stocks are (still) cheap
The S&P 500 currently trades for about 15 times this year's projected earnings, based on Bloomberg Data. If companies deliver the profits they're promising, shares will need to rise in order to match the average price-to-earnings ratio of 20.6 since 1992.

6. Life expectancy
The fact that the current bull market is now one year old is a big deal. The last 13 bull markets that lived that long ending up lasting an average of 4.4 years and returned 153%. This bull is still a baby in comparison.

7. The herd is clueless (again)
We all know it's bad to follow the herd. And right now, the herd is clueless. The entire time the market's been heading higher, they've been plowing their money into bonds and cash!

So if you're selling now, you're investing right alongside the herd. Bad idea.

Be invested or be sorry

In the end, if you doubted my prediction last year and sat on the sidelines, you missed out on a massive rally. Another bout of hesitance could mean missing out on more upside, which would be even more disastrous to your wealth.
So make sure you have some exposure to equities. Just be smart about it. Do these two things...

~ Use position sizing.
~ Use trailing stops.

By doing so, you'll share in all the upside if I'm right. And if I'm wrong, you'll limit your losses.

In my mind, that's a far better proposition than running scared, parking everything in cash and getting paid nothing for it. As the saying goes, "Nothing ventured, nothing gained."

Good investing,
Louis Basenese