Monday, December 8, 2008

Will S&P 500 Stock Market Rally or Continue Downtrend? Market is at Resistance.

The Market (as represented by the S&P 500) is at a decision point. Does the S&P 500 rally or continue the downtrend?

Currently, on Friday, Dec. 5, 2008, the S&P 500 is at 876, and is very near many resistance levels.
  1. Horizontal Resistance: Around 900 to 916
  2. 3 Month Downtrend Resistance: Around 879
  3. 50 Day Moving Average Resistance: 936

If Stock Market breaks through these resistance areas with good volume, there's a good chance the rally continues to at least 1000 to 1040 on S&P 500.

Otherwise, the S&P 500 could continue its downtrend.

We can also pay attention to any big gap up at the open, followed by a high volume reversal to the downside to end the day down. This could mark a failed attempt to breach resistance.

Today's S&P 500 Chart

Monday, December 1, 2008

Secular Bull and Bear Markets; Cyclical Bull and Bear Markets

According to Wikipedia, "A secular market trend is a long-term trend that usually lasts 5 to 25 years (but whose distribution is more or less bell shaped around 17 years, in the stock market), and consists of sequential 'primary' trends."

A Cyclical Market trend is a shorter term trend lasting around two to four years.

A Bull Market "tends to be associated with increasing investor confidence, motivating investors to buy in anticipation of future price increases and future capital gains."

A Bear Market, "is described as being accompanied by widespread pessimism. Investors anticipating further losses are often motivated to sell, with negative sentiment feeding on itself in a vicious circle."

Some would refer to the current market starting in 2000 as the beginning of a longer term Secular Bear Market, with a Cyclical Bull Market occurring between 2003 and 2007.

Secular Markets in History

Market Analysts and Historians would group the stock market periods from 1906 between Secular Bull Markets and Secular Bear Markets.

One grouping (by, would be as follows:
  1. 1906-1921: Secular BEAR Market
  2. 1922-1928: Secular BULL Market
  3. 1929-1949: Secular BEAR Market
  4. 1950-1965: Secular BULL Market
  5. 1966-1982: Secular BEAR Market
  6. 1983-1999: Secular BULL Market
  7. 2000-????: Secular BEAR Market

How the 1950 to 1965 Secular BULL Market Looked Like

The Clear Trend is a powerful Bull Market.

A Buy the Dip strategy would have been profitable during this period.

How the 1966 to 1982 Secular BEAR Market Looked Like

Many say that we are in the middle of a Secular Bear Market which started in 2000.

If this is so, then we can look at the last Secular Bear Market, the Period between 1966 to 1982.

What is interesting is that even in this Bear Market, the Stock Market did rise, but at a much slower rate than during a Secular Bull Market. The Average Yearly Return on the S&P 500 (according to during this period was 3.64%. Compare this to the Secular Bull Markets from 1922-1928 (17.90%), 1950-1965 (11.40%) and 1983-1999 (14.96%).

Also notice the general sideways action but with violent swings in the market.

We see Drops of 33%, 47%, and 23%, and Gains of 42%, 64%, and 122%.

So even in Bear Markets, it is possible to make good gains in the market if traded correctly. Of course, trading correctly (and calling market tops and bottoms) is difficult.

Using an index strategy, it would appear that even in Bear Markets, buying the index when the market drops 30% to 40% from a market peak would be profitable, in preparation for the next big gain in the next Secular Bull Market.

In fact, this blog studied the one year forward return based on an index's relation between the 52 week high and 52 week low. The more overextended the index in relation to the 52 week high (and the more underextended the index in relation to the 52 week low), the greater the one year forward return.

How the 1983 to 1999 Secular BULL Market Looked Like

Clearly, the primary market trend during this long period was up. There was a scary drop in 1987 (Black Monday), but during this entire period, this drop was just a small blip.

Accumulating stocks/equity during the long bear market from 1966 to 1982 would have paid off before the start of the powerful 1983 to 1999 Secular Bull Market.

How the 2000 to ???? Secular BEAR Market Looks Like

If we are in a Secular Bear Market lasting around 17 years, then if the Secular Bear Market started in 2000, the Secular Bear will end around 2016.

If the 1966 to 1982 market is any indication, we will be in for a wild ride in the market, as we have already experienced.

Today's S&P 500 Chart