The Big Picture

The chart below confirms that we are still firmly entrenched in the Secular Bear Market which began with the “DOT COM” Crash of 2000/2001. This chart portrays the big picture view of the current state of the market representing the Dow Jones Industrial Average from January 1, 1900 to today.

We are currently suffering through the 4th Secular Bear Market of the past 112 years. The previous 3 Secular Bear Markets have lasted an average of 18 years. If the current Bear is going into hibernation this will be the shortest Secular Bear Market in history.

It should be painfully obvious that these long term Secular Bear Markets can wreak havoc on your retirement portfolio and should not be taken lightly.

So how will we know when this Big Bad Bear has finally drifted off to sleep? The wave pattern you see in the upper quadrant of the chart below is a Coppock Curve momentum indicator. Notice how the Coppock Curve is either cresting or in the early stages of a downturn at the start of each Secular Bear Market. Conversely, the Coppock Curve is either forming a trough or is in the early stages of an upturn at the start of each new Secular Bull Market. Notice also that the Coppock Curve has historically been at or near the 0 line before it flattens and begins to turn up.

If history is to repeat itself yet a fourth time we should see the Coppock Curve continue to drop from its current level of approximately 125 to 0 before it flattens and begins to turn up. Based on current and past trajectories this could take another 4 or 5 years to play out.

Technical Analysis is 100% accurate in plotting the past, can tell us how much risk is built into the market currently, but it cannot tells us what will happen in the future. An optimist may look at this chart and conclude that we are at the cusp of rewriting history and we are about to breakout into a new Secular Bull Market. A pessimist may conclude that at our current lofty levels, we are on the cusp of another crash or at least a significant correction. Regardless of which camp you may reside, investors are cautioned to remain vigilant.

Click on the chart below for a larger image.

Dow Jones Industrial Average January 1, 1900 through February 11, 2013

Chart courtesy of StockCharts.com