Consider quote and chart from Barrons:
“And, of course, equity investors have been walking on air for a couple of months now. The better tone no doubt owes something to the decline in crude. But, after all, $44 crude is not exactly an excuse to party, especially when, as we hinted in our opening screed, the outlook for the economy is more than a little problematic. But don’t try telling that to the average man in the Street who’s absolutely convinced that happy days are here again. By way of proof, said average Street person points to the incontrovertible fact that the Dow has been setting one 3-year high after another, and the Standard & Poor’s has also leapt to a new peak since ’01. Mania, to be sure, doesn’t build in a day, and the current one started back in early August and has been picking up steam ever since. But in truth, 2004 as a whole hasn’t been a bang-up year for the stock market. Nothing like 2003. To date, the Dow is ahead by a piddling 3.6%; Nasdaq and the S&P have done better, but even their performances are a less-than-sensational 7.8% and 8.8%, respectively. Jim Stack, proprietor of the InvesTech newsletter, who has been very much on the money in his market calls the past few years, ventures that investors have an exaggerated notion of how long bull moves last. A lot of them have come of investing age during the extended bull markets of the 1980s and 1990s and assume the present upswing is of that genre, with years to go. Ain’t necessarily so, Jim cautions — a sentiment his chart, which graces this page, confirms graphically:
Typically, bull moves fade in roughly 2 years, which means this one may be pretty much on its last legs. Sorry about that. But Merry Christmas, anyway.”
Alan Abelson, Barrons
I often enjoy Alan Abelson’s direct commentary, but attempting to use this chart for trading decisions seems most problematic. The chart shows historically what has happened and perhaps properly outlines a building “mania”. It does not, however, equal a trading strategy for up and down markets. Predicting bull or bear markets is not the goal. Following the trend, whichever way it goes, seems more logical (and more profitable).