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David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980... More
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Daily State of the Markets
  • What Kind Of Bull Market Is This Anyway? 2 comments
    Nov 12, 2013 9:35 AM

     

     

    Daily State of the Markets
    Tuesday, November 12, 2013

    It's getting to be that time of year. The time when investors start peering into their crystal balls in order to try and ascertain what might be in store for the next year. While making predictions about what the stock market might or might not do over a twelve month period tends to be a fool's errand and it is never a good idea to invest according to such predictions, it does make sense to occasionally take stock of the current cycle from a big-picture standpoint.

    With the major indices all sitting at or near all-time highs, it is safe to say that stocks are in at least some kind of a bull market. The chart below showing the S&P 500 on a monthly basis since 1989 makes this point pretty clear. Remember, if it walks like a duck and quacks like a duck, it is probably...

    S&P 500 - Monthly Closes
    (click to enlarge)

    Not exactly ground-breaking analysis, right? However, the key question at this stage of the game is whether or not stocks are enjoying a "secular" bull market (one that lasts at least ten years - think 1982 to 2000) or a more run-of-the-mill "cyclical" bull?

    The answer to this question is important if one's crystal ball is to be useful at all in terms of next year's predictions.

    However, the problem is that it is difficult to know the answer to this question for certain without a heaping helping of hindsight. Currently, there are a handful of indications that the indices have indeed embarked on a new secular bull run. And if this turns out to be the case, then the game is likely to be very enjoyable for at least another five to ten years.

    But, since one can't know for sure about such things, it is probably a good idea to focus on the question of whether the current joyride to the upside has been one long bull market that began in March 2009 or two bull markets separated by the big dive in the late-summer of 2011.

    The question of the day is illustrated on the chart below:

    S&P 500 - Weekly Closes
    (click to enlarge)

    Some analysts argue that stocks have been in a bull market since March 9, 2009. This scenario is represented by the green trendline on the chart above.

    Under this scenario, the S&P has gained approximately 165.5 percent over the past 1,733 days. Not bad, eh?

    Other analysts argue that the 19 percent decline seen in the summer of 2011 qualified as a bear market. Thus, the current bull run is only 760 days old and sports a gain of 61.2 percent.

    Why Does This Matter?

    While such a distinction may seem trivial, from an historical perspective it is kinda important.

    You see, since 1900, the average "cyclical" bull market (defined by Ned Davis Research as a gain of at least 30 percent in the Dow Jones Industrial average after 50 calendar days or a gain of at least 13 percent over 155 calendar days) has, on average, produced gains of 85.9 percent over 752 days.

    So... those who argue that the bull began back on March 9, 2009 need to admit that the current gain of 165 percent over the past 1733 days means this bull is clearly VERY old and due to take a break at any time.

    However, if one believes that the current bull began in August, 2011, the situation is a bit different. From a calendar-day standpoint, the current cyclical bull is just now "average" in terms of age. And the good news is that since the average bull gains nearly 86 percent, there is still some upside potential left - based on historical averages, of course.

    Even if one argues that the current bull run qualifies as a secular bull market, it is important to recognize that this move is getting long in the tooth. History shows that the average cyclical bull that occurs within a secular bull market lasts only 1024 days and gains 110 percent.

    Place Your Bets

    The bottom line here is it's time for investors to place their bets. If one believes the bull started in March 2009, then they must bet on the current run being one for the ages. Whereas if you believe that the current bull began in 2011, there may be some room left to run - even if this turns out to be an "average" bull market.

    In any event, the key here is to recognize that the current joyride to the upside could easily encounter some bumps in the road. And if history is any indication, it might be a good idea to consider the old say, "Sell in May and go away."

    Looking for a disciplined approach to managing stock market risk on a daily basis? Check Out My "Daily Decision" System. Forget the fast money and the latest, greatest option trade. What investors need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets.

    Turning to This Morning...

    It's been another quiet morning so far with only the NFIB Small Business Index released. Asian market results were positive while European bourses are weaker across the board as traders return from Monday's semi-holiday. U.S. futures are pointing to a soft open on Wall Street.

    Pre-Game Indicators

    Here are the Pre-Market indicators we review each morning before the opening bell...

    Major Foreign Markets:
    - Japan: +2.24%
    - Hong Kong: -0.93%
    - Shanghai: +0.83%
    - London: -0.35%
    - Germany: -0.29%
    - France: -0.40%
    - Italy: -0.48%
    - Spain: -1.02%

    Crude Oil Futures: -$0.08 to $95.06

    Gold: -$0.70 to $1280.40

    Dollar: lower against the yen and euro, higher vs. pound.

    10-Year Bond Yield: Currently trading at 2.772%

    Stock Futures Ahead of Open in U.S. (relative to fair value):
    - S&P 500: -4.24
    - Dow Jones Industrial Average: -25
    - NASDAQ Composite: -12.58

    Thought For The Day...

    For a man to conquer himself is the first & noblest of all victories -Plato

    Positions in stocks mentioned: none

    Follow Me on Twitter: @StateDave


    The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

    Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

    The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

    The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

    Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

    Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

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Comments (2)
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  • wmateri
    , contributor
    Comments (536) | Send Message
     
    One might want to look for 'causes' of the start of the bull market (though this is also probably a fool's game). Both the QE announcement and dropping of the mark to market accounting requirements in March 2009 could serve nicely as proximate causes for the sudden turnaround in the markets (as opposed to increases in the economy and earnings). By that measure, this bull looks very old indeed, though as long as it is fueled in the same way, it could continue indefinitely.
    12 Nov 2013, 01:23 PM Reply Like
  • David Moenning
    , contributor
    Comments (564) | Send Message
     
    Author’s reply » Thanks for your notes... good stuff
    14 Nov 2013, 08:50 AM Reply Like
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