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Market Timing

Tuesday, 01 July 2014

Many investors think that the bull market that resulted from the massive market crash of 2008 is over, or very near its end. That is highly possible, of course, but NOT a certainty. Many individual investors are basing their opinions on the bull market "recovery" between the two market crashes in 2000 and 2008.

See the 1st graph below:
The bull market between the bottom of the 2000 crash (in 2003) and the top of the resulting bull market in 2007 lasted 5 years.  And, the bull market since 2008 is already older than 5 years.

Also, in the 20-year-period between 1960-1980, the stock market experienced 5 crashes of 35% or more
(4 year averages). =>

So, is it not time for another market crash?

SPY Between 1998-2014

Maybe so, and maybe not.  If you follow the market "logic" in the 2000's, a market crash is definitely due.  But, let's look back at the most recent crash before 2000.   This would be the notorious crash of 1987.

See the first 5 years after the crash of 1987 in the graph below. Using the "2000" logic above, this market recovery would have run out of steam at or near the end of 1992. But, did it ?

SPY Between 1987-1993

As can be seen below, this 1988 bull did not quit running until the end of 1999 or beginning of 2000
(12 years after the crash of 1987) !!!

SPY Between 1987-2000

So, history shows that bull markets (like our current 2009 bull market) do NOT necessarily have to stop running up because they are "old" after just 5 years.

The moral of this story is that:
1) it is very difficult to arbitrarily call the end of either a bull or bear run,
2) the MIPS models are very good at finding "Market Inflection Points" (when markets change direction), and
3) since the MIPS models work as well (or actually better) in down markets as they do in up markets, we need to quit worrying about "market crashes" (and, in fact, welcome them).

Our belief is that this 5-year bull run will continue for some time (but probably not 7 more years).  And, we will see "corrections" on the way up. Of course, this is only my personal opinion, and we will follow (as you should) the much "smarter" MIPS models.

Posted by: Dr. G. Paul Distefano AT 01:24 pm   |  Permalink   |  Email

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