Beginning a Mini Bull Run; Be Prepared for Another Dip

The recent mayhem in the stock market is making many people pull their hair out.  We're all wondering how soon the market will return to a healthy bull market so that our 401k and IRA statements will grow quarter to quarter rather than shrink.  I believe we can gain some objective perspective by studying the following chart (click to enlarge):

The time between 1900 to present had three periods of secular consolidation which averaged about 15 years in duration. These consolidation periods contained many mini bull & bear markets, but the DOW value remained about the same from beginning to end.   

So, we see that we are now eight years into a current consolidation phase beginning in 2000. 

Yes, we had a nice bull run from 2003 to October 2007, but we all know that we recently reverted back to the lows from 2002.  Therefore, if history is to repeat itself, we will likely see the market rally past 12k before returning to 8k. This may happen two or three more times over the next seven years.  We may have seen the bottom when the DOW dipped below 8k, but we may see it again a few more times until about 2015.

After this 15 year consolidation period, we will look forward to the next secular bull market, which may last 16-17 years.  Look at the period from 1950 to 1966 and again from 1982 until 2000; we would all love to see that again and I believe we will - just not until after the current consolidation phase, which may not be over until 2015. According to the charts, we are at the beginning of a mini bull run, but be prepared to face reality with another dip down to the recent lows.  This chart should help us to refer back to the big picture, giving us an objective guide to better plan our investment strategies.

Comments

[investor88:]

Quite interesting look at the markets ie Dow 8k -12k until 2015 [7 more years] before a secular bull of another 15 years.

David says the charts show we are beginning a mini bull but be prepared to face reality for a fall to Dow 8k anytime! Now this is a tough obstacle to navigate for any trader!

Maybe David is right, let the markets show us the way!

2008 Nov 02 08:02 AM

[OctoberFaith:]

lol

2008 Nov 02 08:08 AM

[investor88:]

I recommend print this article for reference especially the charts of the Dow since 1900 and the p/e ratio of the sp500 over the same time span. Looking at it carefully does give some sense of overall perspective.

2008 Nov 02 08:09 AM

[freefall51:]

There seems to be a pattern. But extrapolating a pattern into the future is deceptive. The past development was fueled by increasing population, technological advances and cheap energy most of the time. Limited availability of sufficient energy to fuel substantial growth- cheap or not - will just limit the growth. Peak oil does not go away and I am pessimistic about the available scale of alternative energies. We may plateau forever.

2008 Nov 02 08:42 AM

[2houndz:]

Good chart - thanks for posting.

2008 Nov 02 08:49 AM

[Moon Kil Woong:]

Hmmm november looks bad and December looks grim. As does Q1. So what rally we may see may not come until summer 2009. Do you think the market will be anywhere near 9,000 after all the dour news. I am sceptical of any rally past 9,500. At 10,000 everyone that must be in the market would probably be shorting and laughing at the retail investors who got trapped in the last few short false rallies.

Buy on the dip so we can fleece you again. And while you are why don't you buy another ARM. Banks are still selling that crap as well as CDS and CDOs. So far there has been 0 regulation and 0 reform despite everything people are saying should be done and blaming everyone else. So basically, there is nothing fundamentally positive asides from hopes the US will become a socialist haven for only delinquent homeowners and incompetent financial executives.

2008 Nov 02 11:15 AM

[Joshua Lacey:]

Interesting perspective

2008 Nov 02 12:33 PM

[MarvinMBA:]

Saying that the future model repeats itself can be dangerous to investors....the only stocks that will participate in any bull run will have to prove that they contribute something besides being part of a larger market....yes, I'm looking for a run from oversold but ONLY FOR STOCKS THAT HAVE MERIT going forward like GE and MSFT for example...these people produce something thats going to be needed going forward.,,,MarvinMBA

2008 Nov 02 01:42 PM

[CLH:]

Always keep the past in sight but dont use it to predict the future or you will be wrong.

2008 Nov 02 04:55 PM

[Moon Kil Woong:]

The problem with the market today is people today. They don't want to actually make anything. They think that productivity is just buying something and hoping it can be sold for more tomorrow. Speculation only leads to inflation since there is no real addition to goods or services. The US is in the mess it is today because Bush Jr. and folks encouraged this type of activity and not real productivity.

2008 Nov 02 10:54 PM

[ClintB:]

That chart tells me P/E are going to come way down.

2008 Nov 02 11:08 PM

[MILESCFA:]

To understand this valid observation, visit crestmontresearch.com. In particular, I recommend the links below; however, the site is primarily updated yearly, with some semi-annual updates (and a rare interim report), so even though it may take a while to review all their info, you don't have to do it often (there's even a book that explains it):

crestmontresearch.com/...

crestmontresearch.com/...

crestmontresearch.com/...

crestmontresearch.com/...

2008 Nov 03 05:13 PM

[Kunst:]

CLH: "Always keep the past in sight but dont use it to predict the future or you will be wrong. "

Huh?

What is the opposite of pro found? Am lost.

2008 Nov 03 08:49 PM

[icy:]

Regarding: "Huh? What is the opposite of pro found?. Am lost"

Try driving while looking in your rear view mirror. You will gain insight quickly.

On Nov 03 08:49 PM Kunst wrote:

> CLH: "Always keep the past in sight but dont use it to predict the
> future or you will be wrong. "
>
> Huh?
>
> What is the opposite of pro found? Am lost.

2008 Nov 04 08:39 PM

[DollarTalk:]

Well, this entry is only a few weeks old, so it may be too early to tell, but things seem to shaping up to fit a long term bull market pattern. The bulk of the baby boomers should be reaching 65 by the end of this fifteen year period, so we will probably be depending on their grandchildren to create capital and new jobs in this economy.

2008 Nov 23 05:59 PM