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 . . .


Data Sources: Tom Petruno, LATimes, Bloomberg, The Chart Store.

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