ONE YEAR LATER: March 9, 2009 – March 9, 2010

Today we celebrate the first birthday of the current bull market, the one born a day after stocks hit rock bottom on March 6, 2009, ending the second worst stock market meltdown in history. It has been quite a year since the S&P 500 hit the staggering low of 666.79, so Happy Anniversary!

I had to revisit the chart to remind myself that the S&P had sold off from just above 1300 in only 6 months. It still boggles the mind that this drop represented a nearly 50% decline in the market cap of 500 of the largest companies. As a trader it is important to learn from this historic period. The most evident first step we can take is to continually search for a better understanding of how the market works and the technical warning signs that suggest that it is time to take a defensive stance.

A year later there are many theories on the health of today’s markets. One-year charts suggest the market is “overbought” but still on firm footing. However, weekly charts indicate long term negative aspects that suggest many weeks of consolidation to downside activity.

If the activity from a year ago is in fact a true bull market then history suggests that on average the life expectancy of a bull market is nearly 4 years.

The bulls contend that there are plenty of reasons to expect a second year of gains. However, investors should not count on the same meteoric returns.

Certainly all the government stimulus injected into the economy should be strong enough to overcome the negativity of consumers paying down debt and ever increasing government deficits.

Bull markets tend not to fade quickly because economic recoveries last a couple of years. Unless the economy suffers a double dip, the ongoing expansion should result in stronger than expected profits for U.S. companies. Because earnings supply the impetus for stock prices it is fair to anticipate a strong 2010.

With all of these positives predicting a strong 2010 what might cause this one year bull to end prematurely? A 20% drop, which is the definition of a bear market is possible, say more skeptical market strategists. Risks to the economic outlook remain. Even Fed Chairman Ben Bernanke said recently that the “recovery is not yet self-sustaining.” Will it be difficult to get a consumer-led expansion going with so many people suffering with high debt and job instability. Consumers must lead a revival because they account for roughly two-thirds of economic activity in the U.S.

As we attempt to exercise patience and watch intently, we wonder if the ample supply of government dollars will lead to renewed growth and hiring. Markets are plenty vulnerable to shock and disappointment right now and investors remain edgy.

If the economy can’t generate jobs, and jobless claims increase sharply the bull might be over. Conversely if jobs come back, it is very bullish for stocks. Adding to optimism, interest rate hikes by the Federal Reserve and a big spike in inflation are evident

If manufacturing is in the early stages of recovery, and job growth is about to turn positive and U.S. companies with major foreign operations continue to reap big profits in faster-growing emerging markets, corporate profitability should be better than analysts are now predicting.

With so many contrasting scenarios playing out, we traders must always be aware that future risks lurk. Be prepared, do your research, maintain a disciplined approach and never forget to protect your positions by using “stop loss” orders.