The focus of this post is to alert long term stock holders of the next short term cyclical bear market type which is approaching within the next few weeks.
The first cyclical and secular bear market began with human nature. A cyclical market lasts an average of 18 months, whereas a secular market lasts 18 years. These market cycles are defined on my website at http://www.harmonicstockclock.com.
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Each Secular Bear market type (18 years) begins with the same type of cyclical market, i.e. bull or bear lasting an average of 18 months. The last Secular inflationary Bear market lasting 18 years began on Feb 10th, 1966, with the Dow Jones Index reaching an all time high of 1001 points. The next Secular market type was a bull market lasting 18 years from 1982 to 2000, with the Dow Jones Index reaching a high of 11750 points. These market types alternate between bull market and bear markets. Just as Secular market types alternate, cyclical market (18 months) types alternate between bull and bear markets. The focus of this post is to alert long term stock holders of the next short term cyclical bear market type which is approaching within the next few weeks.
Let's look at history to find a repeating cycle of the type of current market cyclical we are experiencing. Knowing the Secular (18 years) Bear market began in 1966 with a cyclical (18 months) bull and bear markets alternating every 18 months on average. The first cyclical bear market cycle began on Feb 10 1966 to Oct 10th 1966 with a correction of 23%. The next cyclical bull market type began with a move up from the lows on Oct 11, 1966 at 735 points to a high of 994 on Dec 2, 1968, up 29%. Next a cyclical bear market, (18 months) cumulating in a loss of 31% , back to a low of 627 points on Jun 1, 1970. The next cyclical bull bounce from the lows to a new ALL TIME HIGH of 1067 points Jan 18, 1973.
The Dow moved to new highs, 1067 points, despite inflation warning signs and in face of the Federal Reserve raising interest rates. The move to new highs was followed by a 16% correction throughout the summer of 73, and 43% correction to Oct 4, 1974! The Dow Jones Index was at 624 points on Oct 30, 1974. The average inflationary bear market looses 36% in a correction.
Now if we simply count the number of years from 66 to 73, we have a 7 years time span, with two cyclical bull and bear markets. The first bear market correction was as bad as the second one in 73, because we had the last stages of deflation in 1966. By 1970, President Nixon and the Fed were trying to stop rising inflation, (at 1.3% a year) by imposing wage and
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Inflation, like wild fires, start small, then depending on the winds can quickly become a raging forest fire, which is exactly what happened. Soon, inflation throughout the 70's sky rocketing to double digits, energy, food, un-employment, and interest rates all moved higher. (20%)
Flash forward to Jan 2000, when the Dow Jones Index posted an intra day all time high of 11750 only to be followed by a 3 year cyclical bear market down to 7745 or a -36% loss. Remember, there are 6 cyclical (18 months) market cycles within the long term secular cycle lasting 18 years. The average bull and bear market cycles lasting an average of 18 months.
The first cyclical market type, in 2000 was a bear market, lasting 36 months, with a 36% loss. The next cyclical market type was a bull market. The current cyclical bull market has lasted over 36 months with a gain of 50% from the lows.
If this market is a reflection of the previous secular bear market starting in 1966, then we had another 11% move to the upside! If the Dow Jones index hits the all time high of 11750, then we can expect to add 6% more to a new high of 12,455 points! The market moved in 1973 move to an all time high, up 6%, breaking the 1001 points barrier.
The next bear market correction should will come after the Dow reaches 12,455 points. The next correction will be the biggest correction of all! The next correction will wipe out the "baby boomers retirement accounts" and those who still believe in the "buy and hold" theory.
The perfect financial storm is coming with higher inflation, aging "baby boomers", and falling home prices. These problems are world wide, not just in the U.S. only.
The economy is dependent on new consumers; unfortunately, the "baby boomers" have allowed abortion to kill 60 million new consumers and future tax payers in the U.S.
Image by Christchurch City Libraries via Flickr
( Notice from 1973 to current 2001, an estimated of 60 million consumers would have smoothed the transition between the generation x who are largely under 20 years old.)
Next time you are out looking for some service at a store, just think to yourself, "I am relying on this person to pay social security taxes?
Boomers represent 28% of the U.S. population. But in 1964, they represented about 40% of the population.
In other words, in 1964, more than a third of the population was under 19 years old!
No wonder the baby boomers attracted so much attention. In 1996, there were approximately 10 million Americans over the age of 80. Nonetheless, in about a decade, 70 million boomers will begin counting on those "kids" to pay our social security. But that's another set of statistics for another time. Bill Geist who noted first (in 1997) in his book "The Big 5-Oh" that another boomer turns 50 every 7 seconds. Whew! Is that possible? 4,000,000 will turn 50 in 2006, Or almost 11,000 per day!
Russell 2000 Index
Now I know what you are thinking, what about the Russell 2000 Index reaching new highs? If you look at a chart of the S&P 500 Index back to the same time period, 1966 to 1973, the index was making new highs also. In 1973, both the S & P 500 and the Dow Jones Index had major corrections of 40 to 48%. The main reasoning the S & P 500 was making new highs was the belief that investing in a broad diversification of industries would protect against long term losses. Well, guess what?
The cyclical inflationary bear market caused the S & P 500 to fall almost 48%. Also, notice, both Dow Jones and S&P 500 both corrected at the same time! The Russell 2000 Index is following the same pattern, and will suffer the highest percentage of losses.
The geo political ramifications of the 1966 Secular Bear market are the same as they are today.
- Our economy is strong because we are fighting a war.
- Un-employment is low because the numbers of soldiers from the National Guard units are in rotation and employers have to hire temporary workers until the soldiers return.
- Commodity prices are rising due to the surge of industrial Capacity Utilization.
- The baby boomers started the housing boom, with their large population bubble moving throughout the economy buying and consuming everything.
- Our international relationships are not secured, especially with oil producing nations.
- China is both are enemy and our friend.
- China as a "Wal-mart" proxy is our friend by keeping prices low.
- China as our enemy, is consuming raw materials and commodities driving prices higher for raw materials.
Knowing the market media matrix proganda, they will promote the 5 or 6 year all time highs for the Dow Jones Index to boost viewer enthusiasm to buy long over the next weeks.
However, due to the vast volume of programmed computerized trading that has boosted brokerage houses profits, any major moves in the market will accompany huge volume trading day. The huge volume of trading during the day should reach above 4 billion shares traded by 2nd harmonic stock clock time zone. Total volume of trading should reach 6 billion shares traded by the last harmonic stock clock time zone during the day.
These volume high points will mark the beginning of the next bear market correction after the bond yields start expanding from the inversion.
Good Luck long term investors.
God Bless
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