Cart (0)
VIDEOThe Dark Side of Deficits and the Consequences of a Credit Crisis
We're still in a secular bear market. Valuations, while lower, still aren't at what could be called historical cyclical bottoms.
Secular Bull and Bear Markets
Market analysts (of which I am a minor variety) talk all the time about secular bull and bear cycles. I argued in this column in 2002 (and later in Bull's Eye Investing) that most market analysts use the wrong metric for analyzing bull and bear cycles.
(For the record, even though I’m talking about the US stock market, the principles apply to most markets everywhere. We’re all human.)
"Cycles" are defined as events that repeat in a sequence. For there to be a cycle, some condition or situation must recur over a period of time. We’re able to observe a wide variety of cycles in our lives: patterns in the weather, the moon, radio waves, etc. Some of the patterns are the result of fundamental factors while others are more likely coincidence. The phases of the moon occur due to cycles among the moon, the earth, and the sun. In other situations, though, apparent patterns are no more than the alignment of random events into an observable sequence.
All cycles have several components in common. Cycles have a start and an end, they have characteristics that repeat from cycle to cycle, and they often have an explainable cause.
Stock market observers have identified what they believe to be scores of cycles, patterns, correlations, and relationships that have spawned a seemingly endless inventory of predictions and trading schemes. Every trader has his favorite system, well-fortified with back-tested "research" and "facts." These systems all work fine until you begin to use them with real money.
The patterns are so numerous that some market experts discount all theories and acquiesce to a philosophy of randomness. However, just because we don't understand it, doesn't mean there's not useful information contained within a pattern.
I argue that we should use valuations and not prices as the criterion for determining secular bull and bear cycles. If you use valuations, the cycles jump off the page at you. Using prices, it’s very difficult. Let's look at a table prepared by my good friend Ed Easterling of Crestmont Research. Ed co-authored the two chapters in Bull's Eye Investing on stock market cycles and has a treasure trove of charts and tables on a wide variety of investment topics here.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
