Two Signs Stocks Are Heading Higher

Editor's note: The bull market in stocks just turned eight years old.

But that doesn't mean stocks can't go a lot higher – for a lot longer – than anyone could imagine.

In today's Masters Series – adapted from the February 8 and February 15 editions of the True Wealth Systems Review of Market Extremes – Steve Sjuggerud shares two reasons to believe the bull market will continue...


Two Signs Stocks Are Heading Higher

By Steve Sjuggerud, editor, True Wealth Systems

No one is sure of anything anymore – in investing or otherwise...

Recently, Bloomberg reported that "uncertainty is at record highs." But who says uncertainty is a bad thing? History sure doesn't...

Buying stocks when uncertainty is high is a smart move. And that means right now is the time to own stocks.

Let me explain...

Measuring uncertainty isn't easy.

What does "uncertainty" even mean? It's a feeling, not a number.

The folks at Bloomberg came up with one way to track it – news mentions. Here's what they wrote last week...

The number of news stories that contain the word "uncertainty" has reached a record, according to Bloomberg data, which include stories published from multiple sources.

Yep... According to Bloomberg, news stories are using the word "uncertainty" more than ever. And the data goes all the way back to 1992. Take a look...

This might not be a perfect measure of market uncertainty. It's not specific to markets... just news in general. But it helps prove a simple point about investing:

We want to buy when others are fearful... when there's uncertainty in the market.

Just look at a few points on the chart above...

First, uncertainty hit a new all-time high in mid-1998. That was during the Asian financial crisis when many Asian currencies collapsed. It was an uncertain time, and it caused a quick fall in U.S. stocks.

But the U.S. market then entered an 18-month bull run – leading to roughly 50% gains.

Next, we saw peak uncertainty in the early 2000s as stocks fell from their highs during the dot-com bubble.

This set the stage for the mid-2000s boom. Stocks nearly doubled in five years.

We've also seen uncertainty rise in recent years... It peaked in 2012 just after stocks corrected due to the debt-ceiling debacle. Stocks have soared by more than 60% since then.

I hope you see the pattern here. Uncertainty isn't a bad thing for stocks.

We want to own stocks when things are uncertain. And based on this measure, uncertainty is at a record high.

So for now, the message is clear: We want to own U.S. stocks today.

Meanwhile, the Wall Street Journal recently told readers about a "warning sign for stocks."

"Newsletter writers are the most bullish in more than a decade," it wrote.

Sounds scary, right? But what does it mean? And does it matter?

Based on our testing, this "warning sign" is nothing to worry about.

Let me explain...

Newsletter writers haven't been this bullish since 2004.

That's the report from the most recent Investors Intelligence survey for its Sentiment Index. This indicator tracks the overall bullishness of newsletter writers.

According to Investors Intelligence, a bullish consensus of more than 55% means a short-term top is forming... And a reading above 60% means "it's time to start taking defensive measures."

This measure broke above 60% earlier this year and has continued higher in recent months. Take a look...

The Wall Street Journal calls this a major "warning sign" for U.S. stocks. But look at the chart again...

Since 2004, this measure has broken the 60% level seven other times. How many of those times were near a market top?

One.

This measure has only been useful for timing the market once... in late 2007.

The table below shows this idea in more detail. They're the forward returns of the S&P 500 each time this measure broke above 60%...

Date
6-Month
1-Year
2/27/2004
-3.6%
5.1%
11/30/2004
1.5%
6.4%
12/30/2005
1.8%
13.6%
11/30/2006
9.3%
5.7%
9/28/2007
-13.4%
-23.6%
12/31/2013
6.1%
11.4%
5/30/2014
7.5%
9.6%

It's true, these haven't been the absolute best times to load up on stocks... But as you can see, they're far from bad returns.

Stocks increased six months later five out of seven times. And they moved higher a year later six out of seven times.

This "warning sign" has been almost useless over the last 13 years.

Now, we could be near a top in stocks right now. Anything is possible. But history shows that this sentiment measure isn't the one to hang our hats on.

It's easy to be fearful today. But don't let fear drive you into poor investment decisions.

This particular "warning sign" has a terrible track record. So our advice is to ignore it... And continue to own U.S. stocks.

Good investing,

Steve Sjuggerud


Editor's note: Steve just released a brand-new presentation explaining how a tool called "D-30X" has helped him identify the exact moment to buy every stock and commodity in the market... no matter what's happening in the rest of the stock market. Learn more about this powerful investment strategy right here.