150 Months seem to be the limit for Bull Markets

150 Months seem to be the limit for Bull Markets

KCL
Kim Cramer Larsson

Technical Analyst, Saxo Bank

Summary:  Bull markets seem to have a life span of 150 months. That amount of months have now been reached. We could be in for a larger correction coming in to the "Jinx" month


In 1987 the Financial world was hit with a major crash in Equities. Starting in September within two months S&P500 dropped 35% with most of the sell-off taking place in a few days in October. 19th October alone market dropped 20%.
It took two years to recover and from there on market didn’t look back much. Until 150 months later where we saw the peak in the .com bubble March 2000 with a gain of more than 600%. Of course with a few corrections on the way to the peak, most notably the major correction in August-September 1998 the famous Long Term Capital Management Fund collapse. Market got saved by FED.

In 2008 the Housing bubble/Credit crisis also known as the Financial crisis hit the markets sending the S&P500 down with more than 50%. Markets bottomed out in March 2009. Here the recovery took a bit longer almost 4 years. However, a long term bull market was founded.
A few major corrections since with the biggest one last year due to world-wide lock downs only shortly halted the bull market. A bull market where we have seen gain of almost 600% but that could very well has come to an end. 150 months since the March 2009 trough.

The development on RSI is interesting. Every time there has been major Divergence on RSI it has been followed by a big correction, crash or major bear market. On the chart the Divergencies are  indicated with the blue falling lines on the RSI peaks. The current period with divergence is the second longest period with divergence lasting more than 3½ years. During the .com bubble it lasted a few months longer.

Falling RSI values while prices are rising is an indication of a weakening trend. Divergence can go on for quite some time but not forever, eventually is has to be “traded out” i.e. either a new higher high or a drop below 40.

The first Monthly chart going back to 1986 is a Logarithmic scale chart to better illustrate the magnitude of the previous corrections/down trends compared to today’s market.

Zooming in on the Monthly chart (second chart) we can see that September formed a Bearish Engulfing candle which is a top and reversal candle. Bears seem to have taken control from in September.
With the S&P500 is being very far from its Moving Averages, it is in fact the farthest it has been from it since during the Financial Crises and during the built up to the 1987 crash, it is ripe for a correction. Does this mean we will see bear markets/crash like in 1987? No.  
But it means we could be in for a larger correction/down trend. Possibly down to around 3.700-3.650 i.e. a correction of approx. 15% from currently levels. Whether it will be swift or a slow bear market is impossible to predict. However, October is called the Jinx month for a reason, it is historically the month with the most market crashes/major corrections. But let’s see. Keep your stops close.
     
For this bearish scenario to be demolished S&P500 needs to take out previous (September) high.

SP500
Source: Saxo Group
SP5001
Source: Saxo Group

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.