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November 20, 2008

Stock Cycles
by Michael A. Alexander

Progress of the secular bear market: position as of November 20, 2008

The value for R is 1575 as of October 2008. For S&P500 of about 750 this gives P/R of 0.48.

Progress Update on the Current Secular Bear Market

My last progress update was in July 23, 2002(1). I bought on that day. A couple of months later I argued that according to my P/R valuation tool, the level of the market have fallen to a point where a new bull market could begin (2). A new bull market did begin from that level. In June 2006, I presented my methodology for projected the future course of the market.(3) Figure 1 presents a simplified version of the results in that figure, updated was actual R values as they became available.

Based on Figure 1, one should have invested until 2008 and sell in the 1600-1700 area. This is what I did and I got caught by surprise by this premature recession bear market.

So here we are in the 700's in the S&P500 in fall 2008, when according to the four year cycle we should be seeing bull market highs. Timing-wise the bottom of this ordinary bear market should be two years away. Based on the 752 close on 20 November 2008 (see blue cross in figure) we are essentially already at the bottom. Based on the latter assessment, I pulled the trigger and deployed most of my cash into the S&P500 on 20 November 2008. Only time will tell whether this was a wise move.

Figure 1. Projected and actual path of the current secular bear market

References:

Michael A Alexander, "Progress Update on the Current Secular Bear Market" Safehaven, July 23, 2002.
Michael A Alexander, "How Low Can We Go? What Several Valuation Methods Have To Say" Safehaven, July 23, 2002
Michael A Alexander, "Stock Cycles: Part V. Plotting a course for a secular bear market" Safehaven, November 8, 2006.

Mike Alexander

Mike Alexander is the author of four books: (2000) Stock Cycles: Why stocks wont beat money market over the next 20 years; (2002) The Kondratiev Cycle: A generational interpretation; (2003) Retiring Rich: The ultimate IRA and 401(k) investing guide (now available in paperback under the title Investing in a Secular Bear Market) and (2004) Cycles in American Politics: How political, economic and cultural trends have shaped the nation.

Michael is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, we recommend that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.