The secular bull market which began at the March 2009 low is alive, but not well, according to the findings from my recently conducted research. Many analysts and advisors are of the opinion that the 34% decline for the S&P 500 to its 2020 bottom was the end of a bear and the beginning of a new bull market. I had believed that the Secular Bull had ended and that a new Secular Bear market had begun in 2020.
Based on my just completed empirical research (see table below) the 51% rally to new highs by August 2020 did not signal the start of a new bull market. The low proved to be a great dip buying opportunity in the 11th year of the Secular Bull. The breathtaking rally also qualified as a Greed Accelerator for a Secular Bull market which is on its last legs.
The S&P 500’s Secular Bull is not expected to live beyond the age of 12 (2021) due to the following occurrences over the past few months:
- Two highest quarterly P/S ratios from 2000 to 2021.
- Eight BSAs (Bullish Sentiment Anomalies), a record high
- Qualified as the S&P 500’s 1st Perilous Peak since 2000 and 4th since 1881
The table below contains the five periods which represented the S&P 500’s 10 highest quarterly P/S (price/sales) ratios from 2000 to 2021. The index experienced double-digit percentage corrections within 25 days after reaching a record high for each of the periods. Three of the five periods, 2000, January 2018, and 2021 had six or more BSAs (Bullish Sentiment Anomalies). October 2018 and 2020 each had one BSA. Two of the periods, 2000 and the current 2021 qualified as Perilous Peaks.
The research findings in the above table provide the rationale for why the S&P 500’s 34% correction in 2020 proved to be a dip buying opportunity instead of the start of a 2020 Secular Bear market. Unlike 2000, 2018, and 2021, the year 2020 had only one BSA occurrence prior to the S&P 500 correcting to the March 23rd low. The single BSA indicated that the greed intensity level was relatively low when compared to multiple BSAs which occurred for 2000, 2018 & 2021. Additionally, 2020’s highest quarterly P/S ratio was only the 5th highest from 2000 to 2021. Finally, the P/S ratio at its S&P 500’s February 2020 record high was not high enough for the index to qualify as a Perilous Peak and Secular Bull high.
Notes:
- The P/S ratio was utilized instead of the more well-known P/E ratio since its more reliable than a P/E ratio to value an index. Extraordinary losses by the members of an index can elevate its P/E.
- The correction for the 4th quarter of 2018, which was preceded by only one BSA was a continuation of the seven BSAs which occurred prior to February 2018 correction. 2018 which had a combined eight BSAs and the 9th and 10th highest P/S ratios for both periods proved to be a cyclical bear which declined by 6.3% during the 2009 secular bull market..
- For S&P 500 record high to qualify as a perilous peak requires the record high to be preceded by at least one Greed Accelerator. For more about Perilous Peaks read “DNA Discovery Confirms 2021 Perilous Peak & Secular Bull High for S&P 500”, 01/29/21.
- A Bullish Sentiment Anomaly occurs (BSA) when the AAII investor sentiment reading reaches a minimum Bullish level and the S&P 500 reaches a record high in the same week.
The 2000 high was also the high for the S&P 500’s 1982-2000 Secular Bull. It was followed by the 2000-2009 Secular Bear’s 49% decline which is depicted in the chart below.
Since the 2020 high did not qualify as a Perilous Peak, it’s been classified as a record high followed by a 34% correction. The rally from the 2020 low back to a new high was a Greed Accelerator. The video below “Greed Accelerator- How Stock Market Transforms a Conservative Investor into Greed Monster” is about the discovery of the Greed Accelerator, a breakthrough for the science of investor behavior. The video explains why a “Greed Accelerator” has preceded in the past, and must precede in the future, every Perilous Peak and Secular Bull high for a stock market or index. The 4:37 seconds video also graphically depicts the Greed Accelerators which have preceded the S&P 500’s 2021 Perilous Peak and the index’s three prior Perilous Peaks which coincided with three of the S&P 500’s Secular Bull highs since 1881.
The 2020 Greed Accelerator was the granddaddy of all greed accelerators since the S&P 500’s 1871 inception. My predictions below are based on the 2020 Greed Accelerator and my findings from the research which was conducted after the videos were produced:
- The 89.1 % rally from the March 23, 2020 low to April 2021 high will go down in history as the “grandaddy of all Greed Accelerators”.
- The S&P 500’s correcting by a minimum of 10% from its 2021 record high will be the signal that the record high prior to the correction was the high for the Secular Bull market which began in 2009.
- A secular bear with a minimum 8-year duration and a decline of 49% will replace the secular bull during 2021. For more about secular bears and how to invest in them view March 2021, 22:13 seconds, “Why it’s Important to Know the Difference Between a Cyclical and a Secular Bear Market” video. The video is also available via a 7 videos series at AlphaTack.com.