Almost everyone is happy as Diamond Dave when stocks go
up. Luckily, that has been mainly the
case since 2009, despite the fact that it has felt better looking back, and
investors have been nervous the entire time.
It’s helpful to look at similar past moves, not necessarily as a guide,
but to see where we currently stack up in terms of duration and size and maybe
see if a chart pattern stacks up.
The former lets me know there is juice left in the squeeze. While past moves don’t provide absolute
certainty, historical precedent provides trends and perspective. The latter is a guide to how investor
emotions tend to move throughout a cycle.
For instance, while the current bull market run is large in
both size and duration there have been moves in the past that have lasted
longer. This tells me that despite some
clamoring the current market run is due for a reversal (and it may be), past
moves have indicated that such a move can go on for quite some time.
Here is a chart from Merrill Lynch and noted by Barry Ritholtz:
So here is how I see it:
- In terms of duration and length, the current bull market is roughly in the middle. Thus, while long in the tooth, history suggests the market still can run more.
- Twice after a similar rally we have started a new secular bull market after a 20% pullback. (Merrill Lynch note)
- However, twice we have had large time periods of range bound markets after the 20% pullback. (Merrill Lynch note)
- In short, a pullback while inevitable doesn’t have to happen tomorrow and once it does happen it could either be a nice long uptrend for equities or the start of a more range bound market.
- So what this really tells us is that are a still wide range of outcomes, even after our large bull market run.
Thus, I still think the prudent move is to let the market run, while staying
up the quality chain and looking for signs of deterioration, something I will
cover in a future blog. At that point, pairing
back risk exposure will be the sensible move.
The views and opinions expressed herein are those of the
author(s) noted and may or may not represent the views of Capital Analysts,
Inc. or Lincoln Investment. The material
presented is provided for informational purposes only. Nothing contained herein
should be construed as a recommendation to buy or sell any securities. As with
all investments, past performance is no guarantee of future results. No person
or system can predict the market. All investments are subject to risk,
including the risk of principal loss.
