Ron Meisels of Phases & Cycles is one of Canada's best-known technical analysts, outlining his thoughts on the general market and individual stocks in regular market commentary. He believes that we are long overdue for a market correction – but he's staying bullish: As he puts it in the Q&A below, just because there's a stop sign coming, it doesn't mean that you can't still get from Montreal to Toronto.
People know you as a technical analyst. What key indicators are you watching these days?
I'm starting to lean toward being called a behavioural analyst, aside from being a technical analyst. Technical analysis is gazing at charts; but presenting it as behavioural analysis, let us see how people react to the market and news. We use momentum tools, such as the moving averages; and trending tools, such as trend lines.
We definitely look at the percentage of bulls and bears out there. We see extreme levels of bullishness. In fact, based on the statistics from Investors Intelligence, there are now more newsletter writers expressing a bullish opinion than in the last five years. You also have to be aware of the fact that this bull market started in March 2009, which means that this is an aging bull market. We haven't had a significant correction in a long time. It points to the fact that a correction is more likely than not. We're still in a bull market, but we need a minor correction.
Why is a correction seen as healthy? Why can't a market keep rising?
When you have a period like now, people are sitting on big profits and any small event could trigger the idea, "Oh my god, I have to get out."
So is the fear that without regular corrections we could experience a more dangerous and sustained decline?
That is a more likely event. The example I use most often is that the more you stretch a rubber band, the more it is going to recoil.
January has been quite turbulent for stocks so far and some observers are wondering if the so-called January barometer – as goes January, so goes the rest of the year – will work. What are your thoughts?
There are two January indicators. One of them has to do with the first five days of the year, and based on that we were pretty flat. As for all of January, we don't know where that's going to lead yet.
But historically it has been a pretty valid indicator; it has a success rate of over 77 per cent over the past 85 years. You can have exceptions, but 77 per cent is an impressive number.
If there's a correction coming, should investors be more cautious in 2014?
If you have a long-term view of the market, you can probably weather a correction. Be aware of it: You know that you're coming to a stoplight, so you know that you're going to have to stop. But that doesn't mean that you're not going to get from Montreal to Toronto.
We are definitely in a secular bull market, meaning that it is long term. We are at a point where the market is going to have, generally speaking, an upward slope. As well, bonds are giving you nothing these days – and if interest rates rise, then you are still in a better place with stocks in the forseeable future.