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Tuesday, February 19, 9:25 a.m. Over the last 110 years the market has experienced a bear market on average of every 4.4 years. But some bull markets have lasted much longer than that, with only intermediate-term corrections but no bear markets. The records were the 1920’s when the bull market ran on for a then [...]

Tuesday, February 19, 9:25 a.m.

Over the last 110 years the market has experienced a bear market on average of every 4.4 years.

But some bull markets have lasted much longer than that, with only intermediate-term corrections but no bear markets. The records were the 1920’s when the bull market ran on for a then record nine years, and in the 1990s when that bull market lasted for a new record of ten years.

Obviously then, some bear markets also must come along more quickly than the average of every 4.4 years. For instance, it was only 1.7 years between the 1973-74 bear market and the 1976-78 bear market. It was only 3.2 years between the 1976-78 bear market and the 1981-82 bear, and only 2.8 years between the 1987 crash and the 1990 bear market.

And during bull markets there are frequently intermediate-term corrections of 15% to 20% that don’t quite qualify as bear markets, but can cause almost as much damage depending on how they’re handled. Many investors seeing the market top out but not expecting more than a brief pullback, become fearful after paper losses reach 15% or 20% and sell out at that point. Even if they quickly get back in, which is unlikely, after experiencing a 20% loss it takes a 25% rally just to get back to even. A couple of experiences like that can easily exceed the losses of a full-fledged bear market.    

Obviously a strategy that times the intermediate-term rallies and corrections with some consistency should also have high odds of avoiding bear markets, whether they arrive every three years or every ten years. That’s simply because they are liable to be on an intermediate-term sell signal for a correction when such a correction worsens into a bear market.

That has been the record of our Seasonal Timing Strategy.

The period between 1970 and 2012 saw the market experience 7 bear markets, with losses of as much as 54% for the Dow, and 78% for the Nasdaq. Yet back-tested to 1970, and used in real-time for the last 14 years, our Seasonal Timing Strategy’s worst period was during the 2008-2009 financial meltdown, when it lost only 3.6% in 2008, and 4.2% in 2009. Prior to that it’s largest losses were 2.1% in 1973, and 1.9% in 1974, in the 1973-74 bear market the worst since the 1929 crash.

Of course the goal of investing is not only to avoid large losses, but to make profits.

On that score, our Seasonal Timing Strategy has gained 213% over the last 14-years compared to a gain of 93% for the Dow, 49.2% for the S&P 500, and 37.7% for the Nasdaq.

And with roughly 50% of market-risk due to only being in the market five to seven months a year, and even then only in the conservative stocks of the Dow (leaving plenty of room for more risk tolerant investors to improve on the performance if more than tripling the S&P 500 is not enough, with leveraged positions that only bring overall risk up to 100% of market risk).

Of particular interest, while in each period the popular opinion is that this time is different, the strategy worked at least back to 1970 (academic studies show seasonality has been pronounced for much longer than that). And that means through times of war and peace, rising and falling interest rates, rising and falling inflation, boom times and recessions, through political and financial scandals, no matter which political party was in power, etc.

So perhaps rather than worrying about the bull and bear market cycles, a better strategy might be to focus on the market’s intermediate-term rallies and corrections, and by doing so probably take care of the bull/bear cycles as well.

To read my weekend newspaper column click here:  Gold’s Correction Is Not Over!

Subscribers to Street Smart Report: There will be an in-depth mid-week update on the U.S. market, gold, and bonds tomorrow in your secure area of the Street Smart Report website.

Yesterday in the U.S. Market.

The U.S. market was closed yesterday for President’s Day.

Yesterday in European Markets.

European markets closed mixed yesterday. The overall Europe Dow closed down 0.3%. Among individual countries, the London FTSE closed down 0.2%. The German DAX closed up 0.5%. France’s CAC closed up 0.2%. Ireland closed up 0.1%. Italy closed down 0.5%. Spain closed down 0.5%. Russia closed unchanged.

Asian Markets closed mixed last night.

The Asia Dow closed up 0.1%.

Among individual markets:

Australia closed up 0.4%. China closed down 1.6%. Hong Kong closed down 1.0%. India closed up 0.7%. Indonesia closed down 0.2%. Japan closed down 0.3%. Malaysia closed down 0.4%. New Zealand closed up 0.7%. Korea closed up 0.2%. Thailand closed up 0.2%. Thailand closed up 0.6%.

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Markets This Morning:

European markets are up this morning. The Europe Dow is up 0.8%. Among individual countries the London FTSE is up 0.9%. The German DAX is up 1.1%. France’s CAC is up 1.4%. Norway is up 0.7%. Portugal is up 0.7%. Spain is up 1.0%. Switzerland is up 0.7%. Italy is up 1.0%. Russia up 0.8%.

Oil is down $.08 a barrel at $95.78.

Gold is down $1 an ounce at $1,609.

This Morning in the U.S. Market:

This week is a fairly heavy week for potential market-moving economic reports, most of them being released tomorrow and Thursday, including Existing Home Sales  Housing Starts, Producer Price Index, minutes of Fed’s last FOMC meeting, etc. To see the full list click here, and look at the left side of the page it takes you to.

There were no reports on the holiday yesterday.

This morning’s only report is the Housing Market Index, which measures the sentiment of the nation’s home-builders. It will be released at 10 a.m.

Our pre-open indicators remain flat as they have been all morning.

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being up 10 points or so in the early going this morning, meaningless as to direction.

To read my weekend newspaper column click here: Gold’s Correction Is Not Over!

Subscribers to Street Smart Report: There will be an in-depth mid-week update on the U.S. market, gold, and bonds tomorrow in your secure area of the Street Smart Report website.

I’ll be back with the next regular blog post on Thursday morning at 9:25 a.m.

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