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Review of Stock Market Secular Trend Health

Apr. 06, 2011 5:11 PM ETSPY, DIA
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Long/Short Equity, Contrarian, Medium-Term Horizon, Long-Term Horizon

Seeking Alpha Analyst Since 2010

Our Secular Trend Score (STS) assesses the overall health of the secular trend in stocks and identifies inflection points that mark transitions between long-term investment environments. The STS is calculated using a large basket of fundamental, technical, internal and sentiment data, and it has correctly predicted every secular turning point since the stock market crash in 1929. The last signal was generated in December 1999 when the STS moved below the -80 level, forecasting the start of a secular bear market. The predicted secular decline began several months later in 2000 and continues today.

While buy and sell signals identify transitional periods between secular environments, the STS also reflects the development of the current secular trend. As secular bull markets approach their final stage, the STS moves further into negative territory, and as secular bear markets mature, the STS moves further into positive territory. The current secular bear market is now 11 years old, but the STS has yet to even approach positive territory, suggesting that the terminal phase of the secular decline is still several years away. The next cyclical downtrend will likely begin sometime during the next 12 months, and it will be important to monitor the STS trend as the forthcoming decline develops. At this point, we would expect the STS to finally move up into positive territory as the cyclical downtrend descends, reflecting a mature secular bear market that is approaching the final stage of its development.

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