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Long-Term View of the Stock Market

Updated: 02/23/2017


We have strong reason to believe that the stock market is now in a secular bull market. Presented below are four long-term charts that provide sufficient evidence to support our hypothesis. The charts we used are broad market indexes that describe the overall nature of the stock market.


History of the Dow Jones Industrial Average (DJIA)

Covering Years 1900-Present (log scale)
As shown on the chart below of the Dow Jones Industrials, there are three issues worth noting:

1. The long 10-20 year secular bear zones (dashed boxes) all have many cyclical bull and bear markets (lasting 1-4 years), which make little in the way of net progress. After 15-20 years, each secular bear is essentially unchanged.

2. Due to the roller coaster ride, investors who invest based on the buy-and-hold strategy naturally become psychologically exhausted. Though, there there are many opportunities to trade during the many bull (up) and bear (down) cyclic trends.

3. Within each secular bear zone, a major bottom seems to occur about halfway through the zone (dotted oval area). The most recent secular bear market that began in year 2000 had a significant low in March 2009 that will more than likely not be revisited.

4. The breakout above the upper dashed line of the most recent zone and above the uptrending blue line suggests the Dow industrials are potentially in a new secular bull market.

Dow Jones Industrial Average (DJIA), 1900-Present Chart



Recent History of S&P 500 Large Cap Index

($SPX) - Years 1998-Present

As shown in the chart below of the S&P 500 Index ($SPX), the S&P formed an ABCD Expanding Triangle within a fifteen year secular bear market. Within this zone, there were three bull cycles (i.e., cycle O, 1997-2000; cycle A-B, 2003-07; and cycle C-D, 2009-2013), each lasting about four years. There were also two bear cycles (i.e., cycle O-A, 2000-2002, cycle B-A, 2007-09), each lasting two-three years.

In early 2014 (point D), market technicians were expecting to see another bear cycle within the secular bear market. However, the S&P broke out above the long-term upper trendline boundary. This major event suggests the market is now trading within a new secular bull market. Meaning, the market is in uncharted territory.

S&P 500 Index ($SPX), Twenty-Year Chart

As the chart now stands, Waves A, B, C and D have gained or lost more than 45% for each cycle (see table below). There were four substantial moves in the last 17 years.

Secular Bear Market (Yr 2000 to Point D) & Secular Bull Market (Point D to the present):

1.) Bear cycle -- Aug '00 to Sept '02, the S&P declined 46%
2.) Bull cycle -- Sept '02 to Oct '07, the S&P increased 90%
3.) Bear cycle -- Oct '07 to Mar '09, the S&P declined 53%
4.) Bull cycle -- Mar 06, 2009 (intraday low of 666.79) to Feb 21, 2017 (intraday high of 2366.72), the S&P has increased about +254.9%



Recent History of Dow Jones Industrials Average

($INDU) - Years 1998-Present

As shown in the chart below, the Dow Jones Industrial Average formed an expanding channel over the past eighteen years (green lines). In years 2001 and 2008, the Dow crossed below bull cycle uptrending support boundaries (orange lines), and collapsed into bear cycles.

In late 2014, the Dow broke below the bull cycle uptrending support boundary (orange line), followed by a slight break above the long-term uptrending resistance boundary (green line). After the break above major resistance (green line), the index traded below previous uptrending support (orange line) and within a slightly downtrending channel (blue lines) for about two years. During this time, we noted this as weakness in the market.

In late-2016, the industrials broke out to all-time new highs. Not only does this suggest the market is continuing to trade within a bull cycle, but provides enough evidence to suggest the market is in the early stages of a new secular bull market.

Dow Jones Industrial Average ($INDU), Twenty-Year Chart



Comparison of the DJIA and Nasdaq

DJIA (1920 - 1966) and Nasdaq (1994 - Presnt)
As shown in the chart below, we have plotted the Dow Jones Industrial Average for the years 1919-1966. Below the Dow is a best fit chart of the current Nasdaq from 1996-present. This chart was made by positioning the 1929 high of the Dow with the 2000 high for the Nasdaq, and then stretching the Nasdaq chart so that significant lows of the Nasdaq fit the Dow.

The Nasdaq made an all-time intraday high of 4816.35 on March 24, 2000. In November '15, NDX matched those previous highs, but had difficulty in breaking through previous resistance. In the 2nd half of 2016, NDX traded between 4700-4900. Then in early-2017, NDX broke out in dramatic fashion above previous resistance.

Looking at the old Dow chart, at the end of year 1954 when the Dow reached its previous highs of 1929, traders thought previous highs would have presented resistance. They did not. The Dow cleanly broke through its previous highs and continued higher. Same for the current day Nasdaq. The Nasdaq reached its highs of year 2000 much sooner than when the old Dow reached its previous highs. For this fact, we can assume that the advancements in technology are growing at a faster pace than the progress made by the stocks of the older Dow Jones Industrials.

Dow Jones Industrial Average (1920-1966) and Nasdaq (1994-Present) Chart


Conclusion

The evidence from these four long-term charts of the historical Dow Jones Industrials Average, recent secular bear market charts of the the S&P 500 Index and the Dow Jones Industrials (with breakouts), and the Nasdaq Composite comparison chart, suggests the stock market is trading within a new secular bull market. We will continue to face some minor bear cycles, but the overall direction should be a twenty-year bullish market.

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About BMF

BullMarketFunds was started by a team of scientists with backgrounds in earth sciences, finance and physics using machine learning to find the best possible entry and exit points of the highest volume ETFs. Our proprietary strategy is based on this research.


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