Friday, August 17, 2012

S&P 500 - Top in 2012 vs 1999 - 2000 vs 1987 top

US stock market Index  S&P 500 closed at 1418 and is up +113% from Mar 2009 intraday low of 666.
I.e this `Bull Market` rally is now 42 months old.

Since 1950 we have seen just two other periods with similar returns in similar duration - 1987 & 1998 to 2000.
We all know what happened in 1987 & 1999 /2000 - infamous for Black Monday/Friday crashes & corrections.
To put this into better perspective ,lets see 42 months rolling returns of S&P 500 since Jan 1879 to Aug 2012  (in past 1604 months or 133 years).
Here is the annotated chart. Commentary is not required.
Click to zoom

Juxtapose the above chart with other factors to connect the dots such as
  • VIX at 5 year lows below 14 / 15 .
  • Revenue growth misses
  • Copper below 50 / 200 DMA
  • This +113% rally in S&P 500 in 42 months has NOT yet seen neither a price wise bear market correction of  > -20% -30% (which usually follows after such steep rallies) nor has seen a time wise correction. 
  • Obviously usual suspect is Helicopter Ben  `s QE `s  - that`s been stretching the rubber band too much.But for how long before it recoils ?
  • In my opinion,any rallies should be used to shift into cash.
  • I like to call this rally - the market top that your MOM warned out about.  ;-)

Data for S&P 500 is taken from Robert Shiller website.

Now for Technical Analysts / trend followers/ Investors -  let me leave you with few words for thought  - from Warren Buffet `s letter to shareholders in Year 2000. $SPY $SPX
The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities—that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future—will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There's a problem, though: They are dancing in a room in which the clocks have no hands
Disclosure : None / No S&P positions.


Anonymous said...

Interesting, when do you see the top then? Before or after presidential elections in the US due on 6 Nov?

Anonymous said...

Past periods where 42 rolling returns over 100% lasted are as below

1928-1929 - 26 months

1987 - Just 3 months (July- Aug-Sep)
1998-1999 - 40 months

So going by 1987, 2012 rally should peak out by Sep/Oct 2012.

Going by bubble periods of 1928/29 & 1998/99 means market will take at least two years more before it could top out.

Charles Peake said...
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