Thursday, August 14, 2014

* SPX - What a Bull Market End Really Looks Like & Why 'Click Here!' Headlines are Garbage

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The most exhausting part (for me) of market bubble talk isn't so much the agreements & disagreements, the data in support of and data in contradiction to. No... it's just the barrage of ridiculous headlines stating with such great emphasis absolute arguments for both at the same time.  These arguments follow a pattern:

  • Up day in SPX: Bull run has legs
  • Down day in SPX: Bear market has started

It's Not 'Straight Down.'

I'm going to show three simple charts:

  1. The SPX into the bubble of 2000
  2. The SPX into the bubble of 2009
  3. The SPX chart for the last 1.5 years

I hope neither to convince you of a bull market or a bear market.  I hope to numb you to the 'click here!, click here!' news stories and show you what a real bear market turn looks like (at least the last two) and remind you, it takes a long time.

Finally, I want to demonstrate that a down day and up day are simply evidence that the market was either up or down that day.  That's all.

Chart #1: SPX into and out of the Internet (and Biotech) Bubble of 2000.

Provided Yahoo! Finance

While the actual peak was on 3-24-2000, we can see five smaller peaks in a six-month period that left SPX essentially unchanged from the the 'real' peak.

The point: The bear market turn is not 'straight down' at the beginning.

Chart #2: SPX into and out of the Housing Bubble of 2009

Provided Yahoo! Finance

Again, while the actual peak was 10-9-2007, we saw an 'almost' peak on 7-17-2007 and another smattering of mini-peaks for another... you guessed it... six-months.

The point: The bear market turn is not 'straight down' at the beginning.

Chart #3: SPX for the Last 1.5 Years

Provided Yahoo! Finance

The most recent peak (and all-time high) was on 7-24-2014. We saw an 'almost peak' on 7-3-2014. Since that time the S&P 500 has fallen on whole, but has shown (already) two mini-peaks.

The headlines today are, and I do quote: "‘Hated’ bull market still has room to run" via Yahoo! Finance.

That doesn't mean I think we have peaked, nor does it mean that this is tautological evidence of it. I simply want to remind: A huge bull run does not end in a day, or a month, or even a quarter. It takes a long time (six-months) for the peaks to really start being 'lower highs' and for evidence of a larger bear turn to become apparent.

The 'six-month rule' isn't a rule either. Forget that timing.  Just remember:

  • An up day is NOT evidence of a longer bull market.
  • A down day is NOT evidence of a bear market.

They are simply evidence that the market was either up or down that day.  That's all.

This is trade analysis, not a recommendation.

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