This Decade Hasn’t Been for Wimps

10/26/2011 8:45 am EST

Focus: MARKETS

Dan Sullivan

Editor, The Chartist

The last ten years certainly have been a frustrating time for stock investors, writes Dan Sullivan of The Chartist.

Using the S&P 500 without dividends as a proxy for the stock market, you can see that the 1980s and 1990s were great times to own stocks.

Not only were the returns much higher in the 80s and 90s, there was less volatility on the downside in those periods.

From December 31, 1980 to the same day in 1990, the S&P 500 gained 143%. In eight out of the ten years, the S&P 500 was higher. Also during this period, the S&P 500 never had back-to-back losing years.

One cannot forget the meltdown in 1987…but that bear market lasted just a few months. The S&P 500 had an upward sloping curve for the entire ten-year period.

The 1990s were even a better time for stock investors. From December 31, 1990 to the same day in 2000, the S&P 500 jumped 299.81%. The S&P 500 was higher in nine out of the ten years, also (obviously) never having back-to-back losses.

The volatility on the downside was extremely low for almost the entire time. From 1991 to 1998, the S&P 500 did not experience even a 10% correction. In the 1990s there was not even one downward move that qualified as a bear market. The S&P 500 also had an upward sloping curve for the entire period.

The 2000s have certainly been a different story. From December 31, 2000 to the present, the S&P 500 has lost 8.3%. The S&P 500 dropped in three out of the ten years, and in 2008 the S&P 500 suffered one of its worst years in history, losing 38%.

In the 2000s, the market suffered through two major bear markets: The S&P 500 dropped 33.5% from March 9 to October 9, 2002, and lost -56% from October 9, 2007 to March 9, 2009.

The frustration over the past ten years has not only seen in the major averages, but in individual stocks as well. A prime example would be Intel (INTC), which is the largest computer chipmaker in the world.

The stock of INTC traded at $24.96 per share on December 31, 2000. The stock is currently trading at $23.45 per share which is a loss of -6% for over the past 10 1/2 years. [Shares have drifted up to $24.63 in the few days since Dan wrote this, but that’s still less than flat—Editor.]

The most frustrating aspect of this poor performance is that this week, the company announced that its revenue hit record highs for the quarter, operating income was also at an all-time record high, and net income was at an all-time record high. The company also announced that it had a staggering $15.2 billion in cash in their coffers.

How frustrating is it for an owner of the company’s stock over the past 10 1/2 years to have shares that are down -6% when the company is No. 1 in their industry group and making money hand over fist!

The bottom line is that it has been a very difficult market environment over the past ten years to make money, not only in a diversified portfolio of 500 stocks (the S&P 500), but also even owning shares of one of the best technology stocks in the world (INTC).

NEXT: That Said…

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That Said…
At this point, most of the key indices are still near their price levels of August 31, which had marked the peak of an extended trading range. Currently the Dow and S&P are right above the top of the range and have been in that mode for the last nine trading sessions.

All of the key indices continue to hold tenaciously above their respective 50-day moving averages. The market has moved from a heavily oversold condition on October 3, with our Overbought/Oversold indicator registering a -8.50, to an overbought reading of +4.36 on October 14

In the interim, the overbought condition has been worked off with a current reading of +1.39. There is enough negative sentiment out there, which from a contrary opinion standpoint suggests that stocks are going higher over the near term. The latest from Investors Intelligence shows the bearish contingent in the plurality for the seventh week in a row, at 41% versus 35.8% bears.

Looking further out, we expect the bear market to prevail. Once key averages move through the current trading range, there will be formidable overhead resistance in evidence at the mid-June lows as well as the respective 200-day lines. This brings to mind the first rally of any consequence that took place during the last bear market, between early March and mid-May 2008.

The S&P 500, Dow, and NASDAQ were all turned back at their respective 200-day lines, with all of the gains being erased in short order. In the bear market prior to that, the same situation occurred, with the S&P 500 being turned back at its 200-day line on its initial rally off of the lows as well as a couple more times after that.

We continue to advise extreme caution at this juncture.

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