STOCK MARKET IS IN A SECULAR BEAR
RETEST OF OLD LOWS IN THE OFFING
John J. Murphy
S&P 500 IN A SECULAR BEAR... Along with other technical analysts, we've made the point several times over the past year that the market is now in a "secular" bear trend. Let's make it clear what that means. Chart 1 shows the S&P 500 plotted on a logarithmic scale from 1982, when the last secular bull market started. A secular trend refers to a very-long term trend that can last for decades. The rising green trendline shows that the S&P 500 was in a secular (long term) bull market from 1982 to 2002. During a "secular" bull market, several "cyclical" bear markets can occur. Three of these cyclical bears took place during 1987, 1990, and 1994 (see red boxes). All three occurred within the confines of the longer term uptrend. To the upper right, however, you can see that the 20-year trendline was broken a year ago. That means that this bear market decline is "secular" in nature. There can be "cyclical" bull moves; but they'll be in the context of a "secular" bear market. Earlier in the week, we used the same chart so show why comparisons with the Persian Gulf War at the start of 1991 can't be carried too far. Yes, we think we'll get a market bounce if and when the Iraq situation is resolved. Nothing like we got in 1991, however. Maybe a tradeable rally, but no new bull market.


Chart 1

MONTHLY TREND STILL DOWN... Chart 2 provides a closer view of its trend deterioration over the past five years. The red line is a "neckline" drawn under the 1998 and 2001 lows. That support line was broken in the middle of last year. To reverse that bearish trend, the S&P 500 needs to rise back over what is now a resistance line. [Broken support lines become resistance lines]. The October/December rally failed right at the neckline. Monthly Bollinger Bands are plotted around a 20-month moving average (dashed line). To reverse the downtrend that's been in effect for at least two years, the S&P needs to rise over the dashed line. The monthly MACD lines turned bearish almost three years (see red arrow). We've stated before that those lines have to turn positive before any kind of important bull move can start. So far, they haven't.


Chart 2

S&P IN TRADING RANGE... The daily chart shows the S&P having established a seven-month trading starting with last July. It looks like the index is headed toward the lower end of the price range. We think there's a strong chance for a rebound off those lows -- especially if that retest is coincident with some resolution of the Iraq crisis. Even if that were to occur, however, we strongly doubt that any S&P rally will be strong enough to break out of the trading range to the upside. In other words, we could see a "tradeable" rally, but not the start of a new bull market.


Chart 3


February 11, 2003

John J. Murphy, CNBC-TV's technical analyst for many years, and Greg Morris offer money managment and market services at MURPHYMORRIS.COM , email address orders@murphymorris.com .

Editor's Note
StockChart.com has acqured MurphyMorris.com, and eventually Mr. Murphy's commentary will be rolled into StockCharts.com.