According to our mechanical timing models, as well as my conclusions through visual analysis, we are in a bull market, a cyclical bull market, which refers to the bull/bear cycle that occurs about every four years. A subscriber wanted to know if we were also in a secular bull market, which refers to trends that usually persist over many years, even decades. The next chart shows about 85 years of S&P 500 history, and I have marked it with red lines to highlight where, in my opinion, secular bull and bear markets took place.
The decline from the 1929 top to the 1932 low took less than three years, but the decline was almost 90%, so I think this qualifies as a secular bear. The advance that followed lasted about 30 years, certainly a secular bull. The flat move in the 1960s and 1970s has been declared a secular bear by many. It included a decline of about 50%, but it looks like a consolidation to me.
Then came the secular bull market, which began in 1974 (or 1982, depending on your point of view) and ended in 2000.
Finally, the market has entered another sideways trading range, which has lasted about 10 years so far. In that time there have been two bloody cyclical bear markets (down about 50% each) and one cyclical bull that drove prices up about 100%. We are currently in another cyclical bull market, seemingly headed back to the top of the trading range. Some are calling the last 10 years a secular bear market. I am inclined to call it a consolidation, but it certainly has heaped a lot of pain on some investing styles, so I won't argue the point.
Where we go from here is a matter of speculation. It appears to me that prices can continue back up to the top of the trading range, completing the bull market with another gain of about 100%. Perhaps it can continue to rally well above the top of the range in the beginning stages of another secular bull market, or, others have suggested, it may continue sideways for another decade or so, cycling through a series of cyclical bull and bear markets. Last, but not least, there is the possibility that prices will drop below the range and enter a devastating secular decline.
My best guess, and it is just a guess, is that the market will continue sideways for several more years -- the pattern has been set. I don't have a guess as to which way the trading range will eventually resolve, but I don't really need to guess. Our mechanical timing models should keep us aligned with the trend no matter which way it goes.
