Secular Bulls and Bears and Potential Trades

I seem to always be working. Whenever I am out in a social setting (many parties this time of year), people always ask me the same question – “If things are so bad and everybody knows it, then how does the Stock Market keep going up?” This is normally followed by – “How high does the Stock Market go before it cracks again?”

These are questions that people never would have dreamed of asking in 2000. Back then they were programmed to “buy every dip”, because the Markets never seemed to go down. But things have changed, and people who haven’t played defense are frustrated about having been through two brutal Bear Markets in the last decade and they are terrified about it happening to them yet again.

I want to review the reality that is the Markets today. You can either look at reality and deal with it or pretend it doesn’t exist and suffer the consequences.

Here are two charts. One is a Secular Bull Market and one is a Secular Bear Market. I removed the symbols, because who the stocks are is unimportant. What is important is to recognize that Assets Classes move in long term patterns. These patterns normally play out over 18 to 20 year periods.

It is pretty clear where your money needed to be over that 20-year period. I think you can guess what these two charts are. The Secular Bull sequentially made higher highs, meaning that even if the timing of your purchases was wrong, you got bailed out and still made money over time. The Secular Bear Market was in a brutal trading range, where if you bought wrong you got crushed and even you bought right, if you did not sell, then you probably ended up breaking even after 20 years.


Since 1998, you can see that the roles have reversed and you now have one in a new Secular Bull Market and the other in a new Secular Bear Market. Interestingly enough, they are both now at approximately 1,100. I am pretty confident that the top chart will be a lot higher over the next 8 – 10 years than the bottom chart.

The top chart is Gold. The bottom chart is The S&P 500 Index (Stocks). Look at the 20-year charts above and ask yourself if the long-term fundamentals justify an extension of the Secular Bull market in Gold and the Secular Bear Market in Stocks. I believe that they do and will manage money accordingly.


People have convinced themselves that all stocks will ever do is go up in a Secular Bull and never correct or underperform for an extended period – remember the misinformation that Real Estate never goes down…

Stocks can have horrible performance over extended periods. Especially the Markets of economies where the Governments decide that nothing will fail. This is what has happened in Japan since 1990. Take a look at how the Nikki has performed since 1990 –


If you don’t think the same thing can happen here, then take a look at the NASDAQ ($COMPQ), with a very similar Post-Bubble chart. You can easily see Real Estate Prices and Financial Stocks tracking out similar charts over the next twenty years.


Someday, the chart of Gold will look like the Nikki and the NASDAQ, but I don’t think we have arrived at the point where the Gold Market has hit a multi-Generational high. The fact is that THE enemy right now is falling Real Estate Prices. The best way to pump them up is to keep Interest Rates near zero, so that the cost to borrow is cheap, thus propping up Real Estate Prices.

The Fed has chosen to do this by buying Mortgage Backed Securities and US Treasuries. Other countries have chosen to do the same in their countries. Each time there is a crisis, you will see more money printed to buy whatever asset class is being delevered. That is bullish for Gold.

What This Means to You
Stocks are in an extended trading range. They are by definition TRADES, unless you want to hold them for 20 years and potentially have no real appreciation in your holdings. So there will be a time when you must sell. We probably are not there yet, but you should be preparing your holdings for the future need to play defense.

Fewer Stocks Are Working
You can see that the price of the S&P 500 Index ($SPX) is at new highs, but the Bullish Percent ($BPNYA) and the Summation Index (NYSI) are well off of their highs. Bullish Percent measures the percent of stocks in uptrends and Summation is a cumulative total of the number of advancing stocks versus the number of declining stocks.

As trends mature, fewer and fewer names participate in the rally and ultimately the final leaders top and the market rolls over. We aren’t at that stage yet, but leadership is narrowing.


Here is a comparison of Large Cap ($SPX) versus Small Cap ($SML). You can see that $SPX is at new highs, while $SML is several percent below its highs.


Here is a comparison of US Large Cap ($SPX) versus Developed International Large Cap (EFA). SPX is outperforming EFA.


Here is a comparison of SPX versus Large Cap Technology (QQQQ). You can see that they are basically the same chart. So, Large US is performing in line with Large Technology.


THE US Dollar
Near Term, the US Dollar has a very big decision to make. If resistance holds here, then we could see a retest of recent lows and that would be good for Carry Trade items like Gold and potentially Stocks. I am open to anything happening and will have in stops to participate if the Dollar rolls over for a few days or weeks.


This is important because shorting the Dollar has been the engine for the massive US Dollar Carry Trade, which has propped up all kinds of risky asset classes.

I am watching Gold closely for a trade and the ability to sell more of my holdings into any bounce (I wish I had sold it all on Dec 3). If there is no bounce from here, then things could get real nasty very quickly.

Let’s see how well Gold (GLD) manages to bounce if the US Dollar weakens next week. It didn’t take long for Gold to tag the 50-day, did it?


Gold Stocks (GDX) are now at the bottom of their trading channel.


Here is the hourly chart of the Dow Jones ETF (DIA). You can see how it has held support on 3 other occassions at about $102.10 After each successful hold, it has gapped up about 100 points an ventured back to the top of the trading range. I would not be surprised to walk in tomorrow with the Dow up or down 100 points before the open of trading. You can also see where your stop should be if you own DIA.


The NASDAQ 100 (QQQQ) has been leading the markets. See how it is challenging the top of its trading range, while DIA is near the lows of its range? I don’t own much QQQQ, but have stops in to buy a breakout.