A True Bull May Be Years Away

09/28/2009 11:26 am EST

Focus: MARKETS

John Bollinger

President and Founder, Bollinger Capital Management

John Bollinger, editor of Capital Growth Letter, has studied stock market cycles this century and he concludes a new secular bull market won't take place until at least 2014.

Many years ago, I suggested that the 1998 top in stocks was actually the top of the bull market and that the rally into 2000 was a last-gasp rally driven by a few hundred highly capitalized technology stocks that served to disguise the fact that for the typical stocks, the 1982 to 1998 bull market had already ended.

An examination of past markets suggested that the major phases ran approximately 16 years, [with] expansions following consolidations, so I put forward as a working hypothesis the idea that we were entering a long-term consolidation that would last well into the second decade of the new century, with 2014 as a very rough target.

The 16-year span doesn't seem accidental to me. It is four four-year cycles, and until relatively recently, the four-year cycle was the dominant stock-market cycle. It is commonly believed that this four-year cycle is closely tied to the US presidential elections, yet it is clearly evident in other countries as well.

For reference: Ideal four-year cycles lows [include] 1958, 1962, 1966, 1970, 1974, 1978, 1982, 1986, 1990, 1994, 1998, 2002, 2006, 2010, 2014, 2018. (This year's low was a year early. The low usually occurs in the second year of an administration.)

When I first drew the analogy between the then-developing trading range and the [one] that prevailed from the 1960s though the early 1980s, I thought the correct alignment was 1998 to 1966. [But] as so many seemed convinced that the "real" top was in 2000, the obvious reasonable estimates for the span of the developing trading range were:

1998 plus 16 years = 2014 plus/minus a large fudge factor
2000 plus 16 years = 2016 plus/minus a large fudge factor

Now it seems "obvious" that the recent cyclical bear market lows—March 2009—ought to be aligned with the October 1974 bear-market lows. If that is correct, it was eight years from 1974 to 1982 when the [next] bull market started, which gives us:

2009 plus 8 years plus/minus a large fudge factor = 2017.

So, let's say the fudge factor is two years for the early calculation and one year for the most recent events. That gives us a well-populated range from 2012 through 2018, with a median of 2015.

Furthermore, let's assume that the four-year clock is still ticking, and that in a consolidation it is two years up and two down. One more complete cycle equals eight years with a peak in 2012, a trough in 2014, just shy of the median of our range [or] a peak in 2016 and a final trough in 2018, right at the end of our trading range projections.

So, the question is one or two more cycles. I lean towards one (1998 to 2014, 16 years), but there may be two—if the 1974/2009 alignment is correct—before we get the new secular bull market, the sort of bull that raises the averages by ten times.

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