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Structural and Generational Trends

Based on our technical studies dating back to the 1800s, the US stock market as represented by the S&P 500 Index (SPX) has successfully alternated between periods of bullishness (i.e., structural bull trends) and bearishness (structural bear or trading range trends) without missing one beat. Although SPX has already achieved numerous technical projections, this structural bull still has more to go.


Why?


Despite the impressive rally so far, the current structural bull rally is eight years old. Many investors say the structural bull is maturing as it began in March 2009 at 666.79. From a technical perspective, the structural bull started in May 2013, when SPX finally broke out above its 2007 high of 1,576.09. The technical breakout confirmed the end of the 2000-2013 structural bear/trading range market. It also signals the beginning of a new structural bull trend. Compared to other US stock market structural trends in the past, it suggests the current bull is one of the shorter ones.


On average, structural bulls in US stock markets tend to sustain for fourteen years. However, it can also last for twenty years. If history repeats itself, SPX can sustain for another six years. Under the best-case for another twelve years before the onset of a market top.


Several other interesting points worth mentioning.


(1) It is rare for SPX to witness one positive outside year pattern, let alone two (i.e., 2016 and 2020). These two very bullish patterns further support the continuation of the eight-year-old structural bull trend.


(2) The 40-mo ma has been a reliable technical indicator. It has successfully called the directions of structural trends in the SPX Index for the past century. Violations of the 40-mo ma and, most importantly, the rolling over (downtrend) of the 40-mo ma have subsequently led to structural bear markets (i.e., 2000-2002, 2007-2009, etc.). However, the ability of SPX to rebound from the 40-month ma has also triggered the resumption of bull trends. The Feb-Mar 2020 pandemic-induced bear market led to a sharp decline toward the 40-mo ma (currently at 3,094.41). The ability of SPX to rebound from this crucial moving average reaffirms the May 2013 structural bull trend is alive and well.


(3) Generational trends tend to endure far longer than structural trends (8-to-20- years), as they have spanned from 35 to 42 years. For instance, after achieving a generational low of 4.43 in 1932, it would take another 42-years before the next generational low of 63.54 in 1974. From the 1974 bottom, it would be another 35-years before the next generation low at 735.09 in 2009. Since the last generational low occurred during 2009, this would imply the next generational low in SPX may develop from 2044 to 2051.



Source: Charts courtesy of StockCharts.com

Source: Charts courtesy of StockCharts.com

Source: Charts courtesy of StockCharts.com

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