From a duration perspective, is the current uptrend in today's stock
market getting risky? Based on history, should one assume that a correction
may be nearing? Our main consideration of the following charts of the S&P
500 is the duration of the turning points.
In the next set of charts we took a historical "Top" and the
October 2007 "Top" and indexed them to 100 so that we could compare
the price action.
In the above chart, notice the orange line formed a top about seven years
from the September 2000 Top. It would appear that this seven year 'top to
top' cycle is not that uncommon.
Although the pattern after the 2007 correction and 1966 correction are not
identical, the consistent seven year timeframe from peak to peak is important
to note in the above chart.
In the above chart the orange line (1909) does not climb nearly as high as
the blue line (2007) after advancing to August 2014; however in 1909 (orange
line) the United States was tied to a "Gold Standard", likely
resulting in less inflationary effects.
The above chart is an average of the other indexes that illustrates a
seven year top to top market formation. Of course it would be easy to find
any data point that starts seven years prior to a historical top; the
observation that we find fascinating is how actual market tops can regularly
occur in seven year intervals.
The following charts are even more fascinating as they outline fourteen
years of market action.
Notice how the August 2000 top has resulted in a seven year correction and
advance followed by another potential seven year correction and advance.
Fourteen years for any market pattern to repeat even remotely closely seems
to be worth noting, and yet we have found a handful of other examples. (1902,
1906 and 1959).
Perhaps if the Gold Standard were still in effect in the United States,
the current market action would mimic the 1902 market more closely. Either
way, this example of seven year tops is fascinating, and the above charts may
be a reasonable indication that a top may be nearing. However, we would like
to note that there are always exceptions and nothing "has" to
change one way or the other. It may also be possible that the stock market is
at the start of spectacular new bull market that will last for many years to
come. According to our research and market fundamentals, it is our opinion
that a correction may be more likely.
