Executive Summary:
Stocks find themselves in a negative state again this morning as the headlines are all bad. There are new fears about an economic shutdown in the UK, concerns about the startling rise in new COVID cases, the global banking scandal and worries about additional stimulus here at home due to the political repercussions of RBG's death. Oh, and then there is the matter of the calendar – as historically this is one of the weakest weeks of the year and September/October periods are often messy – especially in election years. Taken together, it means there may be some additional downside testing to be done. However, the good news is that all of my favorite, longer-term, big-picture market models remain positive. As such, I'll continue to view the current environment as a corrective/consolidation phase.
The Big-Picture Market Models
There are no changes to the Primary Cycle Board this week. And with the board currently sporting an awful lot of green, my take on the selling in the market is that we're seeing a correction of the excesses that had built up over the summer. So, for now, I'll continue to give the bulls the benefit of doubt and begin looking to put some of the dry powder I have on the sidelines to work.
Primary Cycle Models.
Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability.
Checking In On The "Primary" Cycles
While I don't often make portfolio adjustments based on the long-term trends in the stock market (aka the "primary cycles"), I have found over the years that checking in on state of the cycles and the weekly/monthly charts helps to keep the big-picture in perspective.
Primary Stock Market Cycles.
Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability.
The Secular Market Cycle
Definition:A secular bull market is a period in which stock prices rise at an above-average rate for an extended period (think five years or longer) and suffer only relatively short intervening declines.
A secular bear market is an extended period of flat or declining stock prices. Secular bull or bear markets typically consist of multiple cyclical bull and bear markets.
Below is a monthly chart of the S&P 500 Index illustrating the current cycle, which we estimate began on March 9, 2009.
S&P 500 Daily Chart.
The Cyclical Market Cycle
Definition:A cyclical bull market requires a 30% rise in the DJIA after 50 calendar days or a 13% rise after 155 calendar days. Reversals of 30% in the Value Line Geometric Index since 1965 also qualify.
A cyclical bear market requires a 30% drop in the DJIA after 50 calendar days or a 13% decline after 145 calendar days. Reversals of 30% in the Value Line Geometric Index also qualify.
Below is a weekly chart of the S&P 500 illustrating the current cycle, which we estimate began on March 24, 2020.
S&P 500 Weekly Chart.
Thought For The Day:
The world is but a canvas to the imagination.
