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Is the Retracement done?

February 8, 2018
4 people like this post.

Two days ago we sent out an email regarding the recent state of the markets and the volatility they’ve experienced.

It generated lots of great feedback and a number of questions.  Thanks everyone for sending them through.  Here’s a great example of one such question that prompted a response from myself that I thought was worth sharing with everyone.

Hi Gary

Thanks for the email.

I watched your webinar last Thursday, turned out to be a very good time to hold it.

A couple of quick questions (always knowing that anything can happen on the markets)

Your webinar back in late October 2017, quoted Sir John Templeton, where (in language) did you see the bull market at present?

Back then you said “grown on scepticism”. Do you believe we are still at that level?

Finally and perhaps a naïve question, what level on say the Dow and S&P 500 would we need to see to alter the current market from continuing to be in a secular bull market?

Thanks Paul

Here’s the webinar Paul was referring to if you missed it. Watch now >>>>>

Paul,

You can apply John Templeton’s quote to a Primary Bull Market and to a Secular Bull Market. The mistake that I believe just about all market commentators made in the latter part of 2017 (and are still making) is that they are applying the quote to the shorter timeframe Primary Bull Market, as they are mostly unaware of the bigger picture, that of a Secular Bull Market.

Since I did that eUGM in October last year I noted a well-known Australian commentator using the same quote in a couple of his newsletters. He made this exact mistake.

So, applying the quote to a Primary Bull Market, the US has just passed the Euphoria stage. But applying it to the Secular Bull Market, it is my opinion that the US is still in the Scepticism phase. This pullback will increase scepticism which is exactly what I would like to see.

The Maturing phase, the next phase, typically sees even greater gains. Pullbacks will typically be a little more frequent than at 15-month intervals and less steep than this one. More “mature” behaviour!

We are a long way from the kind of euphoria that ends a Secular Bull Market.

We need the sort of euphoria that you might have heard when Bitcoin hit US$17,000 to US$19,000 recently. People who don’t have a dime in any kind of market (except their retirement fund, of which they probably have head-in-the-sand knowledge) were phoning into talk back radio and saying that Bitcoin will soon be at US$50,000 and even US$100,000!

And in so doing using confirmation bias reasons that, to them, were riskless. They could perceive NO DOWNSIDE. And nobody could use any logic whatsoever to convince them otherwise. That’s EUPHORIA! Bitcoin recently hit lows of less than US$6,000! And it could still fall further.

Or when Gold hit US$1,900 an ounce. Ordinary folk were buying coins and physical gold at premium prices and in-the-know gurus where calling Gold up to US$5,000 within a year, even US$10,000 within a couple of years. That was 6.5 years ago and Gold is now $1,300!

That sort of Euphoria, but for stocks, is what you must look and listen for in this Secular Bull Market.

Everybody will be an expert. Everybody you know will be talking about their stock trades and portfolios like they talk about their kids. You will hear stories of stocks that have risen 100s of percent in a few months and where everyday people would have made 1000s of dollars on stocks you’ve never heard of before.

Just about everybody you talk to will have a riskless mindset when it comes to the stock market!

I believe that the long-term analysis that I showed in my October 2017 analysis webinar demonstrates that this is still years away.

At what level will the stock market indices be when this happens?

I have no idea, But, let’s look to the past for an indication. After all, it’s in the context of the past that I was able to analyse this as a Secular Bull Market. You see, human nature repeats. That’s what we are actually measuring when looking at long-term (or short-term for that matter) stock market price movement.

So, if the indices rise even 3/4 of the 1950 to 1968 Secular Bull Market (from the breakout), the S&P500 could be around 7,085 (350% higher than 1,575). And 3/4 of the 1982 to 2000 Secular Bull Market would roughly see a 950% runup on the S&P500 from 1,575, or 16,530!

Please note, this is not a prediction. Merely a conservative numbers calculation of what could happen if there is a partial repeat of either of the historical Secular Bull Markets mentioned.

Do I care if these levels do or don’t eventuate? Not really.
I would prefer that they do as my investments would achieve a higher value if they do.

However, if they don’t, with the investment process that I, and my clients (as you know) follow, of closing all ETF and stock positions and moving 100% into cash when bear markets occur, I will still achieve returns that are way way better than the markets (& hence alternative investment avenues such as managed and mutual funds – managed retirement funds too!)

More importantly, growth of my retirement funds will be more than enough to enjoy a fantastic retirement. Especially if the next big bear market occurs just before retirement!

How do I know this? From extensive research, including the entire period of the Secular Bear Market from 2000 to 2013.

So, I look forward to the next 10 to 13 years of investing, not with a careless mindset but with a carefree mindset, knowing that whatever the markets do I will be able handle them with the downside protection exit mechanisms that I have in place. And the re-entry signals with which to achieve portfolio growth when they rise.

So, regarding what level the S&P500 might be, look more at peoples’ behaviour than a particular index level to signal the nearing end of this Secular Bull Market.

Hopefully this further assists with your investment planning.

[[ Watch the webinar where the secular Bull Market was explained here >>>>> ]]

Regards,

Gary.

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