One bull or two?
A rather different view is that the bull market began less than two years ago, following the nasty turbulence of summer 2011. During that episode, the S&P and FTSE both shed around 22 per cent of their value, while the DAX plunged by more than one-third. All these indices clearly experienced bear markets at that time, therefore, and have since registered bull-market gains of at least 43 per cent.
If the bull market began only two years ago, its potential lifetime could be rather longer than if it began the best part of five years ago. Jack and Bart Schannep of www.thedowtheory.com point out that the median bull market in the Dow Jones has travelled 74.1 per cent. Applying this percentage to the 2011 lows would see the index rise as far as 18,550 - some 21 per cent higher than where it is at the time of writing.
Schannep target for the Dow
My own view is that the bull market began in 2009 and that the 2011 shakeout was basically a mid-cycle correction. US equities at any rate are therefore more likely to be "late-cycle" rather in the early- to middle-stages. That said, though, I have no problem with the Schanneps' projection. My main query is the exact route that we follow in order to get there.
I listened to a great webcast over the weekend given by Richard Mogey (www.cmffinvestments.com), the world’s greatest expert on cycles in financial markets. Richard's analysis suggests that the S&P 500 could be in for a decline on the scale of 2011. With his trademark precision, he says that a drop of "14 to 19 per cent" could kick in by September. In the late spring, he forecast a 7 per cent early-summer drop. The eventual result was a 6.4 per cent slide.
Cyclical top in 2010
What makes his latest forecast especially appealing is that it ties in with the likely fundamentals, specifically the mooted reduction in quantitative easing (QE1). This has echoes of spring 2010, when the Fed ended QE1 and Richard was calling for a significant top based on the 17-week and 24-month cycles. The S&P then suffered a nasty near-bear market of 17 per cent.
Cyclical high potential today
I myself am not into top-calling, as I explained last week. However, I will admit to being less confident in the uptrend today than I was in, say late 2010 or early 2012. Back then, the US markets were also in a fine uptrend, but much less stretched according to their long-term relative strength index readings, while the prospects for further monetary largesse were much more certain. Even if just one of those things were true today, I would be a raging bull, rather than a cautious one.
Despite my misgivings, I am still on the alert for a further near-term buying opportunity. I am pretty much sidelined for now, what with the markets’ indecisive action of recent sessions and my summer holiday almost here. Should a decent entry arise during my absence, I’ll be happy to take it.
