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Chart Comparisons With Previous Market Tops

  • Written by Syndicated Publisher No Comments Comments
    July 18, 2014

    There are three observations being made about the current resilience of the stock market.

    1. The market has gone 33 months, since 2011, without at least a 10% correction.

    2. It has gone 1,014 days without a 20% correction. That’s the longest stretch since it went 1,127 days, from July, 1984 to August 1987, 30 years ago.

    3. The average bull market over the last 100 years lasted 53 months. The current bull market is now a very rare 65 months old. The last time it came close to that long was the 2003-2007 bull market, which lasted 60 months to its 2007 top.

    That’s three time-frames in which the market is currently flirting with the odds in trying to last even longer.

    I thought it might be interesting to compare the charts of this year to the year when those previous long stretches ended.

    1. The market has gone an unusual 33 months since 2011 without at least a 10% correction.

    In 2011, GDP went negative in the 1st quarter for first time since the Great Recession, as it did this year. Actually it went twice as negative in the 1st quarter this year as in the 1st quarter of 2011.

    Change In Real GDP

    On the following market chart, 2011 followed a strong 2010, with repeated new highs. It declined in March, and then resumed making repeated new highs until mid-year.  And then a 19% plunge to the October low.

    071714d

    This year, 2014, follows a strong 2103, with repeated new highs. There was a decline in January, and then new highs to mid-year so far. 33 months since that last correction of 10% or more in 2011?

    071714e

    2. The S&P 500 has now gone 1,014 days without a 20% correction. That’s the longest stretch since it went 1,127 days, from July, 1984 to August 1987, 30 years ago.

    In 1987, the market had a minor decline in May then climbed to successive new highs into early August. It then topped out into a 36% decline including the 1987 crash in October.

    071714f

    3. The current bull market is now a very rare 65 months old. The last time it came close to that long was the 2003-2007 bull market which lasted 60 months to its 2007 top.

    Among some other conditions, market valuations are even higher now than they were in 2007, as is margin debt and other conditions often seen at significant market tops.

    In 2007, the market was coming off a strong 2006. It pulled back early in the year, then recovered and began making repeated new highs into July. It then declined 10% into August, only to recover to a new high in October. That had everyone thinking all was well.

    But that time it was not just a correction, or even just a quick crash as in 1987, but the beginning of the severe 2007-2009 bear market. 

    071714g

    It may not mean anything. Three data points are not meaningful statistically.

    But, annual seasonality and the 2nd year of the Presidential Cycle going back 100 years do have a statistically meaningful history, and are also in play.

    Combined with the three unusual time stretches the market is trying to exceed, (time since last 10% correction, since last 20% correction, and since last bear market began), and the similar conditions and appearance of the charts in those years, it looks a bit more ominous.

    The consensus of our intermediate-term indicators came off their buy signal of last fall in February but only to neutral. The market is still making new highs, and our intermediate-term indicators remain neutral. But we are holding 60% in cash with odds still high of a sell signal at some point fairly soon, and significant profits from downside positioning. 

    The above comparisons of 2011, 2007, and 1987, do not alleviate my concerns.

    To read my weekend newspaper column click here:    The Bond Rally Is Not a Good Omen for the Stock Market

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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