A lot of technical damage was done this week. The Dow broke back below 9,504.64 as described by the 50% principle. The intermediate term indicators that I use also turned negative. The short-term structure of the trading cycle has turned negative and we now have a weekly swing high in place. These are all indications that the recent rally has concluded and that the decline into the seasonal low could now be under way. »
My current analysis of the stock market from a long-term perspective remains bearish. At this time I find the argument of October 2002 marking the 4-year cycle bottom to be still somewhat iffy. I find the argument that we have entered into a new bull market absurd and it is history that will help us understand this.»
As you can see, each Bull and Bear market has been a longer series of 4-year cycles and the percentage advancement of each Bull market has been roughly double the previous Bull market’s percentage advancement. The Bear markets have indeed lengthened in terms of the series of the number of 4-year cycles as well.
Now, I want to focus on the Bear market declines. The 1921 to 1929 Bull market was 8 years in duration and the 1929 to 1932 Bear market was 3 years. The Bear market duration was 37.5% of the preceding Bull market. The 1942 to 1966 Bull market was 24 years in duration and the 1966 to 1974 Bear market was 8 years. This Bear market duration was 33.3% of the preceding Bull market. The last Bull market ran from 1974 to 2000 and was 26 years in duration. Some argue that the last Bull market began in 1982. I understand that argument, however, from a cyclical perspective the Bull market began in 1974. 1982 was when the Bull market broke out and became apparent. The point I am trying to make obvious here is that this Bear market is just beginning. It was not over with the October 2002 low. Based on the relationships of the Bull and Bear markets of the past we are not very likely to see the bottom of this Bear market before 2008 and possibly as late as 2010. I say 2008 because that would be roughly 33% of the duration of the preceding Bull market. A bottom in 2010 would be closer to the 37.5% decline seen with the first Bear market. From a Cyclical perspective, this Bear market will have to end with a 4-year cycle low. I would say that we should expect the bottom with either the 2006 4-year cycle low and possibly not until the 2010 4-year cycle low.»
My minimum price objective for this Bear market based on my technical studies take the S&P 500 down to approximately 315 and the DJIA down to about 3,000. These targets are also confirmed if I apply a fundamental measure, based on historical P.E. ratios.
....Today the yield on the S&P is 1.7 and the P.E. is 30. Based on today’s earnings a P.E. or 10 would take the S&P 500 down to 348. In order for the S&P 500 to produce a yield of 6% it would have to sell at 292 while a yield 8% would mean that the S&P 500 would sell at 219. I know most people are probably saying, “no way that will happen” and that is exactly what I heard back in 2001 when I was calling for a decline into the mid 7,000 range in late 2002. I can assure you this bear market is NOT over and this forecast is highly probable.»
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