In speaking of securities market cycles, we are concerned with four types: secular, cyclical, seasonal, and random, or noise. Martin Pring, in his book Technical Analysis Explained, refers to these as influences on a trend. After a brief review of each, this post will look at the notion of secular, or long-term, bull and bear markets.
In reverse order, the seasonal cycle is that which plays out over 12 months. One essence of it is captured in a cliche like “Sell in May and go away.” Cyclical is generally thought of as taking place over four years, and it fits nicely with a Presidential term. Secular is a time frame that encompasses several four-year cycles. The Kondratieff wave is a50-54 year cycle named after a Russian economist Nicolai Kondratieff. Each trend has a random or noise element to it. Whereas the other cycles can be approximated–or fitted–with a curve or line, the random influence can not. Those are the definitions. Now let’s get to the title of this gig.
As can be seen in the chart below, since 1928–the earliest data we have available, the Dow Jones Industrial Average has experienced five secular trends. Two were of the bullish variety; three–including the one we’re in now–were of the bearish variety. Notice that stocks do not need to experience end-to-end declines to be considered bear markets; they merely need to go . . . well, nowhere.
By using the powerful tools of our Bloomberg terminal, specifically the very cool Cycle Finder (green humps), we find that the cycles have averaged almost exactly 16 years. We found this by focusing on the period from 1965 – 1981, a period in which we knew that stocks went nowhere from end to end. No, 16 years isn’t perfect, but it comes awfully close. It missed the 1929 peak by a couple of years, but, hey, this hocus-pocus stuff isn’t supposed to work at all.
Extending the 16-year cycle into the future can give us a clue as to when the current secular bear market might end. The chart below does that. Naturally, the “12/31/15″ gives a false sense of precision, so we need to be vigilant for signs that might indicate the next secular bull market is beginning. Even applying the Great Depression whiff of three years to that date, though, suggests that 2012 could still find us in a sideways, bear market.
A later post will take a look at what signs we can look for to tell us that a new bull market is about to begin.