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Bull Market or Bust?

Fin - Breakout - US

You may think the streak of weak economic data is just a "soft patch" in an otherwise intact recovery, but you know that hiring and firing and housing and inventories and more are all moving in the wrong direction.

You may think that the impending end of QE2 and the Federal Reserve's two-year, $2 trillion program to boost asset prices is over and fully priced in the market but you know that without it, stocks and bonds both are sitting on inexplicable and dangerous gains.

Your gut may tell you that this 7-week slump is all part of a normal and natural corrective process for stocks that have gained 100% in 26 months but your head is telling you the sanguinity amidst the sell-off, the orderliness of the retreat suggest some true drama - the sound of cannons - awaits us.

I think you get my point; that no amount of data, decline or defeat can shake a perma-bull from their conviction. If anything, it only emboldens their resolve to 'buy the dips. While at the same time it instills a risky "I told you so" smugness amongst bears that no amount of selling can satisfy.  Make no mistake, for the professional and individual alike, it's rough out there and picking your spots and charting your course is not easy.

Let's take Paul Schatz of Heritage Capital as an example. On the one hand he cites runaway pessimism as the core case of a bullish thesis that's calling for a near-term rally back to, or above, the previous high of May 2nd, followed by a bigger sell-off in the third quarter. "We'll probably see one more chance for the individual to get sucked back in to the market again and get left holding the bag," he says while pointing to recent fund-flow activity that rose in late April just as stocks topped.

The primary reason investors have become overly pessimistic is because we have been pounded with negative news, particularly on the jobs front, which shows no improvement or change over the next 2 months - or 10 months, according to Schatz. Along the way, he advises buying on very weak opens and strong closing rallies, to be nimble (versus clumsy), and says if you try to just buy a mutual fund and hold it for the next 1 to 3 years "you'll get hurt."

His strongest conviction seems to be on currencies where he sees the dollar index going back to 100 and says the Euro will be gone in 10 to 20 years.

Bull market or bust? Let us know what you think in the comments section below or send us an email to BreakoutCrew@Yahoo.com