HAUKE: Bad news doesn’t yet apply to stock market

This is the end. It has to be. Greece is about to join the lost city of Atlantis on the bottom
of the ocean. The oil spill in the Gulf will soon begin washing up on the beaches of Lake Michigan. The Koreas are a week
away from firing homemade nuclear missiles at each other. And, I almost forgot, the Palestinians and the Israelis are at it
again.

Pardon me for bringing a few facts to the pity party, but odds are strongly against a major stock market decline starting
April 23, the last time the Dow Jones industrial average hit a new rally high. I know it feels like nothing can go right on
the headline front. I know it seems like the stock market goes down every day and should keep falling until it hits zero.
I am not making light of the losses people have suffered over the last six weeks. Rather, I will put forth solid evidence
demonstrating that the losses should be recovered over coming months and that this is the wrong time to join the bear parade.

The last time I remember a situation like this was in 2008, but not in the way you might think. While the market did get
hammered that year, there was a 10-week period from late March until the middle of June where it rallied pretty hard. I had
a feeling it was a counter-trend move, or a false situation, pretty much right from the beginning. I was very vocal about
my doubts of the sustainability of the upward move. Days went by, and the market kept moving up. Days turned into weeks, weeks
turned into months, and the market kept going up. Some people thought I was a fool for not getting in (I know this because
they told me).But then by the middle of June the major trend started to reassert itself and the selling kicked in again. The
market proceeded to fall another 50 percent from there over the next nine months. I wasn’t tempted back in, despite
the media and the experts giving me every reason to change my course.

The same thing is happening now, only in reverse. The market is experiencing a hard counter-trend move, which is a false
situation. Now, days have turned into weeks, and weeks might turn into months, but the result should be the same. The major
trend should reassert itself, and I believe the market will see at least one more new high between now and the end of the
year. There is the potential for a significant move higher, and the risk is far lower than you think. This isn’t a question
of getting lucky or taking a gamble. Investing right now is simply putting the probabilities strongly in your favor.

Here are the facts. Summer doesn’t turn into winter without going through fall. The same is true with the transition
between bull and bear markets. At the April high, all of the longer-term indicators that signal approaching bear markets were
instead signaling a continuation of the uptrend.

Now, these indicators do not warn how severe or mild the inevitable bull market corrections will be. But they are potent
on the major trend front. While there are several such indicators, one easy example that anyone can look up is the number
of stocks hitting a 52-week high. On April 23, the stock market hit a multiyear high. On April 23, the number of stocks hitting
a 52-week high also set a multiyear high. This indicator typically tops out months before the general stock market.

One of the top thoughts going through your mind right now might be, what if this time is different? The stock market is simply
a reflection of human nature, and human nature hasn’t changed in 6,000 years of recorded history. It’s never different,
and this time won’t be, either.•

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Hauke is the CEO of Samex Capital Advisors, a locally based money manager. His column appears every other week. Views
expressed here are the writer’s. Hauke can be reached at 203-3365 or at keenan@samexcapital.com.