The logic is fairly simple. Right now we know that virtually ever sector of the market is at historically low valuations (based on P/E ratio) - so stocks will go up sometime. But when? From an investor psychological point of view, something needs to happen that shows us some good news - and then people will start to think. Maybe not act, but start to think more positively.
My father was a stock technician from the early days of chart reading - he died a pauper. However, most people can see a downward trend. The sign of continued weakness is when you see a downward trend recover half its value on weak volume - meaning no real support for a real upward move, and plenty of room for further fall. We've been through that stage.
Now we are in a sidewards moving market that is called a trading range market. It is jumping up and down, testing old highs and new lows - but never seems to make any new trends. Right now we are between Dow 7 -9,000 trading range. Some people will call this the accumulation stage when people have fair confidence we have seen the bottom and are now buying stock at a low price. But now, the volume is low, so this is probably a drifting market with no sentiment except despair.
When we see some larger volume on the upside and lower volume on the downside, that is a true accumulation stage - in theory. I remind you all this is chart reading, or technical analysis which has a timeless link to people's psychology of when they will buy and when they will sell. But real time events need to be considered as well, ie, what is happening in the real world - not just in the charts.
Something like the 10,000 mark is a powerful point of resistance. When the market breaks through this point of resistance - with plenty of buying volume, and plenty of good economic news to support the uptrend, then you are seeing the horns of a bull market - but we certainly have not seen the head or the body yet.
But these are all positive signs and by all rights it should be a good time to dollar cost average into the market for the next 12 months. That is both a technicians and a value traders analysis of what should be happening. In other words, our team is marching down the team with the ball. Of course, plenty could happen to stop the bull market - which is why we dollar cost average.
Double dip recession, record inflation, or a number of things could kill the beast. But one thing is for sure... we will have flushed out all of the MAJOR issues, such as sub-prime lending with Wall Street and the government's complicity. We should have both the liquidity market, the credit market and the housing market back on stable ground.
We should have slain the big dragons when the Dow passes 10,000, and just like Black Jack if you've been counting the cards, their comes a time to increase your stakes in the game because the odds are the you will come up a winner. No guarantees, still a gamble - and I ain't got a crystal ball. But that is logic that makes more sense to me than a talking head just winging it on TV.