Search

Cyclical bear within a structural bull?

There remains confusion as to whether the 2022 stock market decline is the start of a structural bear or a cyclical bear within an existing structural bull.


A bull market occurs when stock prices rise by 20% or more after a decline of 20% or more, and vice versa for a bear market.


Knowing when a bull or bear market has transitioned to the next trend is challenging. Forecasting the exact top or bottom is fraught with danger.


The stock market tends to rise and fall in repeating cycles, often lasting for months, quarters, and years. A bull market denotes an extended period when the stock prices are rising.


An uptrend represents a series of higher lows and higher highs. Bull rallies are associated with rising investor optimism, consumer confidence, and high expectations for future economic conditions.


Market psychology and behavioral finance can play a critical role in influencing trend changes.


Bull markets often coincide with the expansion phase of a business cycle when the economy is recovering, strengthening, or expanding. Rising gross domestic product (GDP), declining unemployment rate, and strong corporate earnings and profits depict bull markets. Consumption is high and firm demand for investments, including stocks, IPOs, and real estate assets.


Bear markets often coincide with the contraction phase of a business cycle when the economy is weakening or contracting. Falling GDP, rising unemployment rate, and weak corporate earnings and profits denote bear markets. Consumer and investor pessimism rise during a bear market.


If the stock market trend is up for an extended period, it is often a bull market. If it is down for an extended period, it tends to be a bear market.


The stock market is a leading indicator. Bull and bear markets often move ahead of pivotal turns in the economy from months or quarters in advance of an economic peak or trough.


With the extreme swings in stock prices this year, is this a cyclical bear decline (20%-plus over a brief period) within a structural bull or the start of a structural bear (20%-plus over an extended time)?


The listed U.S. indexes remain in long-term structural or secular bull trends but endured cyclical bear declines.


The primary difference between cyclical bull and bear markets and structural bull and bear markets is the time frame.


Cyclical bear markets are shorter-term, ranging from 3-6 months on average, but at times sustaining for 12-24 months under unusual circumstances (i.e., Tech/Telecom bubble 2000-2002 and 2007-2009 global financial crisis).


Secular and structural bull trends are longer-term, sustaining from eight (8) to twenty (20) years.


The Nasdaq markets, technology, and growth stocks have suffered cyclical bear declines. Like their listed counterparts, the long-term structural/secular bull trends remain intact.


Structural bear markets can sustain eight (8) to twenty (20) years. The typical cyclical bear decline tends to be sharp and abrupt, typically driven by exogenous, geopolitical, or external events. For instance, the S&P 500 Index’s Feb-Mar 2020 pandemic panic sell-off resulted in a 1,201.66-point collapse or -35.41%, firmly placing it as a cyclical bear decline within the May 2013-present structural/secular bull market.


A cyclical bear this year can set the stage for yet another mid-term election year cycle low.


Based on the monthly SPX chart, a negative outside month in Jan 2022, an overbought condition, and the failure of SPX to maintain above its 10-month ma (currently at 4,324) have led to a sharp decline to 3,636.87 (6/17/22 intraday low), coinciding with the middle of the 2009/2010 uptrend channel (3,530) and the pivotal 40-month ma (3,696).


Based on the Fibonacci retracements, the ability of SPX to retain above its 50-61.8% retracements (3,505 and 3,195) from the Mar 2020-Jun 2022 rally bode well for the resumption of the structural bull.


The ability of SPX to find support in the mid-3,000s hints at a cyclical bear decline. However, further technical work is necessary to confirm the June low as the market bottom and the resumption of the Mar 2020 intermediate-term uptrend, and most importantly, the continuation of the May 2013 structural bull.


Source: Charts courtesy of StockCharts.com

Source: Charts courtesy of StockCharts.com

Source: Charts courtesy of StockCharts.com

61 views0 comments

Recent Posts

See All

Technical Summary Equities – SPX nears pivotal intermediate-term resistance at 4,105-4,219 or the top of the Jan/Mar 2022 downtrends, Jun, and Sept 2022 highs, the 50% retracement from the Jan-Oct 202