The great bull market that began in the early 1980′s is over.
Many traders define a bull market to exist when prices are above their 200-day moving average. When prices cross under the 200-day, you have a bear market. By this definition, not only are we in a bear market now, but we may be in one for decades.
Here is a monthly chart of the S&P 500 going back to the beginning of the great bull (click to enlarge):
As of October 31st, prices (black line) have crossed under the 200-month moving average (red line). That makes it as official as it gets. So, the bull is dead. When the 50-month moving average (blue line) crosses under the 200-month we will have a “death cross” and we can bury the bull.
The double-top pattern on the chart is about 700 points from the peak to the 2002 trough. So, if it plays out, we can expect to fall 700 points below the 2002 low. That would take us right back to the baseline from the early 1980′s. While that sounds impossible, it’s what can be expected from a bubble. But could we really get there? Maybe, if the Fed can’t stop the deflationary spiral, or they trigger hyperinflation while trying. And of course, important stocks like General Motors have already crashed all the way back.
Note: my chart uses an exponential moving average and a semi-log scale, but the cross shows up even with a simple moving average on a linear scale.
[...] Trivisonno’s Blog Bear Market Growls Until January 2010 « Friday’s Trading Goodbye Bull [...]
HOLY MACRO thanks once again Matt
That is a very frightening scenario.
Matt — Can you run the chart going back to 1966 ?…… would like to see how far under the 50 month got , However, what is important here if this down move is secular then the 200 mon will be the CEILING of any and all rallies for years to come (hence my interest in 1966 data point foward) .
I doubt there are but very mkt participants who have seen the 200 mon act as a ceiling since the last time it happened was 1980.
The 50 never went under the 200 but did touch it late 70′s. Interesting, in 1974/75 bottom looks like price went about 30% below the 200.
sorry over 40% not 30%
200month-MA graphs for the major indices and a very long-term chart: http://www.contraryinvestor.com/mo.htm
I definitely think that we have some downside coming, but do you guys really think that looking at 30-yr, 50-yr, and 80-yr charts will tell us where we’ll stop?
As I’ve mentioned, I don’t use tools that don’t have any logic behind them. Technical charting works mainly because decades ago people found trends and traded on these. As these patternds became more well known and computer power increased, these trades developed positive feedback loops and remained effective. However, to extend these tools over multi-decade periods is just asking for trouble.
PhDs created stock models, even backtesting them. This is how CDOs were priced…
Matt,
I do agree that the bull is dead for awhile. I also trust your analyses more than anything CNBC says. I jsut think that while we may see 600 before 1500, we may also see 1200 before (if ever) 300.