Happy Anniversary: Top and Bottom!
By one of those oddly serendipitous coincidences, this week marks not one but two major Wall Street anniversaries:
Happy Bottoms: The 12 year low was set one year ago this week. On March 6, 2009, the markets made their “Devil” bottom: The S&P500 hit 666.79, down 57.69% from October 11, 2007 high of 1576.09. The Dow Jones Industrials peaked the same day at 14,198.10, and fell to 6,469.95. The Nasdaq peaked on October 31, 2007 at 2,861.51 — far below the 2,000 peak (more on that later). It plummeted to a March 9th low last year at 1,265.52.
Over that 18 month period from October 2007 to March 2009, the Dow lost 54.43% — a drop of 7728.15 points. The SPX fell 57.69%, or 909.30 points. The Nazz also fell 55.77%, or in total points, 1595.99.
From the lows, the Dow is now up 63.31%, while the S&P500 has gained 70.77%, and the Nasdaq has added a fiery 83.83.%.
As I have discussed since 2003, we are in a decade plus long secular bear market that began with thee popping of the dot com bubble. The evidence strongly suggests that the current up move is a cyclical bull market rally within the context of this secular bear market — and not the start of a new multi-decade bull move like 1982-2000 or 1946-1966. I expect this rally to end sometime over the next 12 months or so — longer if the Fed keeps the accommodation on, shorter if they retire the printing presses earlier. If history holds, markets should encounter a 25%, or so correction at that future date, lasting about 13 months. What follows that correction is a broad trading range for several years.
To put this into context, we are now somewhere mid 1975, with the start of the next secular bull (i.e., 1982) a few years off in the future. Note these dates are only used for the broadest of context, not precise timing.
Unhappy Tops: The other big date is the anniversary of the dot com, telecom and tech bubble. That peaked on March 10, 2,000 at 5,132.52. Nasdaq bottomed 31 months later at 1,108.49 on October 10, 2002, it had lost 78% of its 2000 peak value. At 2,326 today, the index remains 54% off that record high — even after an 84% rally from a year ago.
That was the start of the secular bear market. The strength of the rally from the rally from 2003 Iraq war beginning to the 2007 peak was driven by extra-ordinary Fed rates at generational lows, a financial sector that ignored risk, and massive deficit spending in the way of unfunded tax cuts and huge spending increases. Perhaps the best way to describe the 2003-07 rally is “illusory.”
We will see if history renders a similar verdict on the current move off of the March 2009 lows . . .
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Data Sources: Tom Petruno, LATimes, Bloomberg, The Chart Store.
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March 9th, 2010 at 6:57 am
Some more data for the 2000 crash regarding the Dow:
2000 Peak
11,750.21
1/14/00
2002 low
7197.49
10/10/02
Percentage Loss of Dow – (38.75%)
14,198.10
10/11/07
Percentage Gain of Dow = 97.26%
March 9th, 2010 at 7:13 am
The Nasdaq peaked on October 31, 2007 at 2,861.51 — far below the 2,000 peak (more on that later). It plummeted to a March 9th low last year at 1595.99.
you mean a low of 1,265.52. 1595.99 is the amount it fell, as you state in the next paragraph. also, i don’t think the 2000 in “2,000 peak” should have a comma since it’s a year, but i wouldn’t have mentioned that unless i was posting anyway. :/
~~~
BR: Damn, good catch. (Frickin dyslexia!)
I’ll fix above
March 9th, 2010 at 7:23 am
[...] Happy anniversary to a major market bottom – and a major market top. (TBP) [...]
March 9th, 2010 at 7:41 am
It’s funny how when they use somebody “else’s” money it was “illusory”, and when they use their own money it has substance.
I think your argument as to where we are in the grand scheme of the market deserves serious consideration, and then pause, and then a decision as to where we are to go.
What you are experiencing right here is indecision, we can go either way from here.
The problem is those with the power of the purse have to understand or should I say believe that the path from here is offensive or one of growth, and not defensive or one of maintaining the status quo.
Flip a coin. Which result did you get?
Hate to sound like a permabull in the face of bearish headwinds, but have to call it like I see it.
March 9th, 2010 at 7:58 am
And Barry just the other day someone was giving you a hard time for not making market calls.
I’m a “muddle through” type and this sums up my feelings wonderfully.
March 9th, 2010 at 8:46 am
I make market calls when I have something to say.
The weekly or monthly calls on a schedule are kinda goofy and pointless. People make them because the media asks.
If I have nothing new to say, I usually respond “On month XX, we said ___. We see no evidence to change that view, tho the (rally/sell off) is now further developed.”
March 9th, 2010 at 10:45 am
Nice review and great analogy
Detail: Mkt bottom 1974 depending on which index you use was Aug, Oct (I believe) or Dec 1974. Value Line indices picked Dec as the bottom based on P/E and potential appreciation 3-5 yrs out. Latest bear mkt was a spike bottom.
In any case, perhaps we are half a year farther advanced in this attractive analogy than mid-1975. By early 1976, stock prices actually began to surge to an all-time high, but inflation was so high that this was not a new inflation-adjusted high. A perfect analogy to the post-1974 bear would thus entail a strong fake-out rally followed by a multi-year descending bearish-oriented market but with playable trending rallies.
March 9th, 2010 at 11:18 am
BR –
Why: ” the current up move is a cyclical bull market rally within the context of this secular bear market “?
Unless you think we bottom harder than Q1 2009, 666. THEN this will be seen as the first leg in the next secular bull market.
Its helpful to put numbers on this… so maybe one thinks we go up to 1,400 on SPX this year and then have some hic-up next year and kinda flat growth driven by demographics, taxes, rates, deflation where we spend 5-yrs in a 1200-1400 trading range. That reasonable, if a little broadly speculative for me.
I’d say, after 10+ flat years equity risk looks good.
March 9th, 2010 at 11:35 am
“thee” popping… Typo or literary flourish- I love it!
March 9th, 2010 at 11:37 am
Tax cuts are not obligations, ergo no need to fund them. Increasing spending, radically, in the face of tax cuts is borderline fraud (but since the government is involved, all is well.) Given the massive amount of flooding (of money) done by the USG & the Fed, the past ten years of growth were largely illusory (so need for the quotes, the description is spot on.) Happy bottom day.
Regards,
TDL
March 9th, 2010 at 12:52 pm
[...] learned a year from the market bottom. (Big Picture, MarketBeat, Morningstar, [...]
March 9th, 2010 at 2:15 pm
[...] The Big Picture wishes a “Happy Birthday to the Top and Bottom!“ [...]
March 9th, 2010 at 2:15 pm
Barry,
I would just say that some of the ideas you throw out for digestion can cause a bit of indigestion when chewed upon and especially if swallowed. Your preference for the 1974 bottom similarity is fine and is indeed one of the leading candidates for trying to chart our course from here. But where as useful views on inflation rates, interest rates and market projections are always welcomed and understood to be a moving target, throwing out meaingless numbers to the masses just leads to a bunch of nodding heads or blank stares.
While you are quick to note that the dates are approximate in your forecasting of the end of this rally in the next 12 months or so, you might as well include the correction amounts. Lets not forget that we had a 15% correction till sept 1975. A clock is right twice a day, in your time periods and amounts are variable and seemingly path independent then well, Barry, you too shall be right twice a day. Stick with the macro and fundamentals, otherwise try commit to the chart forecasting.
March 9th, 2010 at 8:16 pm
Oh my. Who should I believe in? BR or Cognos? Duh.
I think BR just gave us an honest informed call.
And dead on.
What he avoided saying was how bad it might be. Good move on his part.
Unsustainable is the first word that comes to mind.
So to all those “cognos” out there still doing the 2/20 thing: make hay while the sun shines.
March 9th, 2010 at 10:17 pm
Cognos makes hay in the dark!
But the recovery trade has plenty of room to run. I dont think BR and I disagree too much. He’s just trying to keep his constituents happy (and therefore is highly non-specific).
March 9th, 2010 at 10:38 pm
@cognos: Thanks for shining a light into the dark.
I’m really not sure you understand how much you just revealed. But it was a good thing.
March 9th, 2010 at 11:08 pm
Actually BR is quite specific in an unspecific time frame. Calling for a 25% correction some time..some day is just ridiculous. It detracts from his valuable insights into the deeper and broader picture. If BR doesnt have an idea of when and where, but supports the unsustainable trend notion, thats all fine. Seems he is saying we are on an unsustainable path. But the specifics about why that path is unsustainable, what measures make it so, the likelihood of continuing these policies and what would be best policy for a healthier future and if/when it would take place are much more meaningful in terms of charting our course in a backdrop of artificial stimulus and technicals.
So arm us with the reasoning and try not to awe us with projections unless you plan to put some serious thought in projecting market this particular market’s global dynamics.
March 10th, 2010 at 4:46 pm
My belief is that we are in a secular bear that started in 1998. The Y2K bubble was inflated by the central banks in an effort to avoid contagion in the developed world from the implosion of the Asian Tigers. Essentially the only stocks that had good returns in the bubble period were tech and biotech related stocks, the rest of the market had sub-par returns.
My guess is the secular bear will end between 2014-2017
March 16th, 2010 at 5:08 pm
[...] For many people, this month marks the one year anniversary of a 12 year market low for the Dow, which was set last year on March 6, [...]