The roller coaster ride continued after the major indexes were not able to build on Tuesday’s rally. Yesterday, it was nothing but treading water as the markets essentially went nowhere.
Fluctuating oil prices and the Libyan turmoil combined to keep short term market direction neutral. On the other hand, the bull looks to be getting a little old and lacking upward momentum as Mark Hulbert observed in “A bull on steroids:”
Even if this bull market were to come to an end today, its second birthday, it would still go down in history as one of the most powerful in U.S. history.
And that’s worth noting, because it means that — to the extent this bull market continues into its third year of life — it will be venturing even further than it already has beyond what many of the historical norms would suggest we can rightfully expect.
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So as my contribution to the birthday celebrations, I will compare the current bull market to its predecessors over the past century.
That requires coming up with a list of past bull markets, of course. And that‘s easier said than done, since there is no agreed-upon definition of a bull market. I chose to follow the precise definition employed by Ned Davis Research, the institutional research firm.
For them, a bull market requires one of three conditions to hold: (1) at least a 30% rise in the Dow Jones Industrial Average in 50 calendar days, (2) at least a 13% rise in the Dow in 155 calendar days, or (3) at least a 30% reversal in the Value Line Geometric index. Since the beginning of the last century, using this definition, there have been 33 bull markets prior to the current one.
It turns out that only 14 of those 33 bull markets even lived to their second birthday. So we can see right off the bat that the current bull market, by continuing to exist through today, is already in the minority.
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In other words, the current bull market in its first two years gained more than all but two of the past 33 bull markets. From this perspective, the current bull market would have to be considered as getting somewhat long in the tooth.
To be sure, there are other ways of slicing and dicing the data that paint less of a sobering picture. One comes by focusing on the life spans of the 14 prior bull markets that did make it to their second birthdays. On average, those 14 bull markets lived to be over three years old.
We can only hope that this is the particular historical precedent that the current bull market chooses to live up to.
And that is the big unknown. I have no doubt that without outside influences this bull might have a ways to go but, globally speaking, we are all connected at the hip.
That means events on different continents, as we are seeing right now, have the power and influence to derail any bull market anywhere. This does not mean that a derailment is always the consequence, but the possibility exists and it pays to be prepared in the event of a return to bearish territory.
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