What happened every year ending in "5" since reconstruction?
So should I mute my bearishness? I will tell you I am a big believer in stock market cycles and seasonal work. But let me show you two of the most interesting years in this cycle.
First of all, here’s the 1965 weekly chart (above), which had an 11.7% correction. Hey, that’s huge considering this is what the Elliotticians called grand super cycle wave 3. Even if you aren’t an Elliottician the period from 1949-66 is considered our greatest era of prosperity. While the statistics are true, the long-term top just missed 1965 and topped in February 1966. Just for your curiosity, in case you were wondering the big red bar on the left is Nov. 22, 1963. The next what could be considered an outlier is 1975. As luck would have it, the technical bottom for the entire decade hit in December 1974. It had nowhere to go but up. So I’m showing one chart that just missed the top and another that just missed a bottom.
In some of the other cases we had a correction for most of 1953 which meant the big bull years were ‘54 and ‘55. And 1956 was a down year. 1945 was a good year coming out of somewhat flat ‘43 and ‘44. Of course, the war was won in 1945. And 1935 came out of a flat ’34; 1925 was the follow through to the lift-off to the great bull of the roaring 1920’s, which really took off for good in 1924. And 1985 was a great year largely because ‘84 was a big pullback year. Even 1994 was a correction type year and ‘95 was the year the Internet bubble started taking root.
Do you think politics had anything to do with it? It was the third year of a presidential cycle and you’ll recall that in 1994 the GOP took control of Congress with Newt Gingrich’s contract with America. Ever the shrewd politician, Bill Clinton took the hint, set himself on a new course to work with the new Congress as much as possible and the country started to enjoy a great period of prosperity.
In 2005 the Dow opened at 10,783 and closed at 10,717, which meant it was mostly flat but from the high in March to the low in April they had an 8.9% drop.
So what could make this year different? For one thing we are on the back end of an extended run, not coming off a flat year. In that vein, this could resemble 1965; 2005 was part of a smoke and mirrors bull market and I don’t think you can find a single decade where you can replicate the shenanigans we saw in that year. While I don’t think we are on smoke and mirrors right now, this is going to be the year the market has to survive without QE.
This is also the third year of a presidential cycle and the president shows no appetite for pivoting to work with the new opposition Congress. This is not going to be Clinton vs. Gingrich.
That being said, I also see 2015 with the most domestic and geopolitical challenges quite possibly in 100 years. So in case you were wondering, the 1915 market was up big likely because 1910-14 was a bear market. Is it just more luck?
As you know I believe this is going to be a very challenging year for the markets for all the reasons I’ve discussed the past month.
For right now, here’s the intraday situation. The year ended on a decent Fibonacci ratio, which could’ve been an ABC down but Friday violated that and the implication is a major violation or it was a small degree 5th wave. If it was a 5th wave it ought to bounce by no later than the last hour of trade on Monday. Overall, we still have a wedge scenario in place which could very well give us a big correction sometime in the first quarter. We could have a lot of uneven trading to start the year.
But for me, nothing has changed. Whether this is a ‘5’ year or not, 2015 represents a maturing bull market that has bubble like tendencies with lots of problems the world hasn’t seen in a long time. We would be incredible fortunate if the SPX did anything remotely close to the performance of 2014.