Stocks have scorched higher in the past 13 months in a virtually unprecedented fashion since the financial crisis and stock market crash of 2009 — barring some of the craziness this week, of course. From the March 2009 low after the financial crisis to the recent rally high, a span of 277 trading days, the S&P 500 has risen 79%. According to analysts at Lowrys, that is the strongest rally of any new bull market since at least 1960.
But after yesterday’s mayhem, more investors are worried not about the gains since the 2009 lows but the prospects of returning to those dark days. Let’s take a look at the prospects:
Other steep rallies in 1962, 1974, 1990, 1998 and 2003 were in the 30% to 40% range, while the one out of the 1982 low was +62%. All of these blockbusters of the past pale next to the rally witnessed in recent months. And the S&P 500 of course has not been the top major index, as the Nasdaq Composite is up 98% and the S&P 400 Midcaps are up 106% since the economic crisis and stock market crash we saw in 2008 and 2009.
Combined with the strength of the end to end rallies now are concerns about the recent move out of the February low, with nothing more than a two-day pullback in the 14% two-month rally. While these have been nice to enjoy, to be sure, a lot of analysts have wondered whether the market is now setting up in a manner similar to spans seen just before crashes in 1929 or 1987.
Both of those tops were seen by most in their eras as declines that came without warning when the market was very close to a peak. In other words, those were much different than the bear market that we just experienced in 2007-2009, which was a long, slow grind lower.
Well, I have a more positive spin on those observations. Looking back at those tops, analysts at Lowrys and elsewhere have seen that both were preceded by rather long periods in which market breadth had been deteriorating and the number of new highs had been long declining as well.
Lowrys points out that at the market peak on September 3, 1929, the NYSE advance-decline line was already in a long downtrend — well below its 1928 levels. The same was true in 1987, as the advance/decline line peaked in March that year and the number of new highs had peaked in 1986.
Moreover in both cases, buying power had been in a long downtrend before both, while selling pressure had been in a long uptrend. In other words, demand for stocks had been diminishing long before the peaks. In the case of 1987, when the data is better, the demand had been waning for almost two years.
Lowry’s points out that neither of these concerns at in force now. The NYSE all-issues and operating-company-only measures are both near peaks for new highs and breadth. And buying power and selling pressure measures in the past week made a new rally high and reaction low, respectively — showing that the force of demand is far stronger than anything seen in either of those major tops of the past.
So while I still believe the market is enduring a normal correction now, there is nothing in the advance measurements available to us that suggests that an abatement of the 2009-2010 bull cycle is close.
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