Bull Market, Really?

I told my subscribers back at the 2009 low that the longer the rally out of that low lasted, the more convincing it would become.   At the time I made this statement, I did not truly understand how profound it would become.   I have maintained, ever since the rally out of the 2009 low began, that it was a rally within the context of a much longer-term secular bear market.     I have also maintained, ever since the rally out of the 2009 low began, that this rally would continue until my DNA Markers, which have appeared at every major top since 1896, are seen.    At that time I did not think that this rally would carry price to new highs, but in spite of that fact, the data continues to suggest that this is still, nonetheless, a rally within the context of a longer-term secular bear market.  The fact that this advance has carried price to new highs has changed nothing.  Nor has the fact that the advance has continued as long as it has.   Rather, the data tells me that this has turned out to be a much bigger trap with a much bigger train wreck to follow once the setup with the DNA Markers is complete.

With this all said, I realize that it may be beyond hard to understand how a move to new highs can be considered a rally within the context of a much longer-term secular bear market.   For starters, let me explain that since 1896, secular bear markets have run about a third the duration of the preceding secular bull market.   I want to also add that it is a historical fact that at secular bear market bottoms the PE Ratio on the S&P has been roughly at par with the dividend yield.  

Here’s the details and a little background.  Prior to 1921, the secular bull and bear markets were one and the same with the  upward and downward portion of the 4-year cycle.  Beginning in 1921, these secular periods began to grow in duration with the first extended secular bull market running from 1921 to 1929.  This 8 year secular bull market was then followed by the secular bear that concluded at the 1932 low and which proved to be approximately one-third the duration of the preceding secular bull market.   Furthermore, the PE on the S&P at that low was under 10 with a dividend yield of 10.50.

The next secular bull market began at the 1942 low and extended up into the 1966 top, which was a period of 24 years.  The secular bear market that followed bottomed in 1974, which was an 8 year period, which again, was some one-third the duration of the preceding  secular bull market.  At the 1974 low the PE on the S&P was 7.24 and the dividend yield was 5.9. 

The next secular bull market began at the 1974 low, not the 1982 low.  Reason being, this was the low point, which was confirmed by a bullish primary trend change in accordance with Dow theory and a value low, as is represented by the historical PE and dividend yield.   Furthermore, Richard Russell called that bottom using Dow theory within weeks of the low. 

Now, this brings us to the 2002 and the 2009 lows.     The first problem with the 2002 low is that it was preceded by only a 2 year decline, which if we assume for the moment that the secular bull market peaked in 2000 the bear market decline would have been less then 10% of the duration of the preceding secular advance.  This falls far short of the historical one-third average and the PE at the 2002 low was 33.12 with a dividend yield of 1.79, which is hardly at par.

Now if we assume for the moment that the secular bull market ran from 1974 to 2007, which I think is the case, it makes the secular bull market 33 years in duration.   Again, the decline into the 2009 low was a mere 2-years, which in this case was only 6% of the duration of the preceding secular bull market and which also falls far short of the one-third historical norm.   Also, at the 2009 low the PE on the S&P was at 23.76 and the dividend yield was at 3.58, which again is hardly at par. 

So, based on these historical relationships and measures, which go back to 1896, I can only conclude that neither the 2002 nor the 2009 lows marked a secular bear market bottom.    My historical research also shows that in every extended secular bear market period, each 4-year cycle has violated the previous 4-year cycle low.  Therefore, with the 2009 low having violated the 2002 low, the data further suggests that the 2007 high marked the secular bull market top.   If this is true and if the secular bear market that follows holds to the historical one-third duration relationship with the previous secular bull market, this secular bear market should run some 11 years, which would take it out until approximately 2018.  

But, what about the fact that price has moved to a new high?  How could we possibly be in a secular bear market period with price having moved to a new high?  Well, I have included a chart of the 1966 to 1974 secular bear market below.   As you can see, in conjunction with the rally out of the 1966 Phase I low, the Transports moved to a new high, but was still followed by a move to new lows in conjunction with the decline into the Phase II low in 1970.  Then, as the market rallied out of the 1970 Phase II lows, the Industrials moved to an all time new high in January 1973.   In looking at the chart of this period do you not think that with the market at new highs following the two severe, declines into the 1966 and 1970 lows that the public was not convinced of a new bull market when it was sitting at new highs in January 1973?   I’d say so.  I mean, what idiot would argue otherwise with this kind of market recovery?  After all, the advance had even produced a so-called “Dow theory buy signal,” as was also the case with the advance out of the 1966 low.   Well, things aren’t always as they appear and those who understood Dow theory phasing understood what was going on.    Those that did not, were ultimately slaughtered.  I’m telling you,  the data tells me that the sheeple are again being lead to the slaughter house and it’s not going to be pretty.   

Want a little more evidence?  Something other than just these historical relationships that go back to the inception of the Dow Jones Industrial Average in 1896?   Okay, let’s look at the foundation that this so-called bull market rests on, Total NYSE Volume.  I have included a chart below showing a phenomena that has never been seen before.   Total volume, as is represented by the red line on the chart, peaked in August 2007, which was two months before the price peak.   There were, of course, volume spikes as price moved into the 2009 low.  Then, volume dropped off as the advance out of the 2009 low initially began, but finally did pick up in association with the advance into late 2009. But, note that it was less than what was seen in association with the low.   Volume then contracted in December of 2009 and into the decline that was seen into early 2010.   Since then, note that the advances have occurred on shrinking volume and the expansions have occurred in association with the price declines.  In particular, look at the most recent advance that has followed the November 2012 low and that has carried price to new all time highs.  New Bull Market?  Seriously?    Common sense should tell anyone that this is not what bull markets are made of.   This behavior is indicative of a bear market rally.  I simply fail to see any other way of reading this.   I don’t care what the politicians, commentators, economist, some so-called expert, Phd or any other analyst says.  Since 1896 there has never been a bull market like this.  There is no historical precedent for such behavior.  This data cannot be overcome, the data does not lie and this is not good. 

The talking heads and so-call analysts that are advocates of this being a new bull market have simply not done their homework.  In my opinion, as is the case with the public, they too are being lead by emotion.  Plus, it’s a whole lot easier to sell people on something they can see rather than something that they can’t.  I wish my conscience would let me take the easy road out and make the easy sell, but it won’t.  When I called, in print, the top in 2000, few listened.  When I explained, in print and on the air, throughout the 2005, 06 and 07 period that we were dealing with an extended 4-year cycle advance and that the stretching of that cycle would only make matters worse, few listened and, yes, the call of  The top was made to my subscribers in 2007.   I also saw the exact same thing with the call of the top in housing in 2005, which yes, that too was in print.   Then, there was the call of the top in crude oil in 2008.  I gave the details to my subscribers in print, but there was so much hype about $200 oil that I could not resist the temptation and I made this call on the air.  You can not imagine the negative response I got from that.   Oh, and more recently there was the 2011 top in gold and the even more recent decline seen there.  Yes, this too is in print in my research letters.   My point here is not my previous calls of major tops.   Rather, my point here is that I am not afraid of sticking with my data and not letting the emotion drive me to join the heard to the slaughter, even when it maybe a hard sell.  My point here is that the same methods used to make these other calls is currently being used today and just as was the case with these previous calls, the DNA Markers that I have found to have occurred at every major top since 1896 are key.   All the while, the longer the rally lasts, the more convincing it becomes and the bigger the trap and train wreck that follows will be.  If you would like to know more about the DNA Markers, current expectations and the identification of the DNA Markers, that data is available real-time as it all unfolds through the research letters and short-term updates at Cycle News & Views.  Please, don’t be fooled by the mainstream hype and emotion.

June 12, 2013

But, even if this proves to be the case, the overall weight of the evidence also suggests .......”  If you want to know more on the developments and details surrounding Dow theory, my quantitative methods and the DNA Markers, that research is available in the monthly research letters and short-term updates at Cycles News & Views.  www.cyclesman.net