Friday, July 03, 2009

Should we fear the secular bear?

In March, I've posted that the US stock market is now a secular bear market (go here). Yesterday, I came cross this post in the Big Picture about the S&P500 monthly chart (adjusted for inflation) over the last 140 years. The chart was sourced from The Chart Store.


Chart: S&P500 monthly chart (adjusted for inflation) for the past 140 years

My observations:
1) The peak-to-trough decline for the past 3 secular bears range from 66% to 70%, with the average of 68%. Assuming that the recent trough of 670 (recorded in March 2009) is the bottom for the current secular bear, the drop from the peak to the trough is about 65%. That's about equal to the average decline in the past 3 secular bears.
2) In the past 3 secular bears, the peak-to-trough took 165-238 months, with average of 191 months. The current secular bear dated back to March 2000. Assuming that the recent trough of 670 (recorded in March 2009) is the bottom for this secular bear, then the peak-to-trough took only 108 months. This means that the current secular bear could be the briefest secular bear, if the recent trough of 670 is the bottom for this secular bear. The next briefest secular bear is the 1968-82 which lasted 165 months.
3)In the past 3 cycles, the time that S&P500 took to return to the peak of the preceding secular bull is about 263-350 months, with the average of 301 months. Historically, the secular bull overshot the peak of the preceding secular bull.

Assuming the March low of 670 is the bottom of this secular bear, the average duration the S&P500 may take to go back to the 2000 peak would be about 110 months [i.e. the average of (3) less the average of (2)]. So, in about 10 years time, the S&P500 may return to its 2000 high of 1940 from its March 2009 low of 670- giving an attractive non-compounded return of 18-19% per annum. To me, that's a good case why one should look at equity investment, when the time is right.
at

4 comments:

  1. tehSaturday, July 04, 2009 11:40:00 AM

    Hi Alex,

    What do you think about market? is that will continue going down?

    ReplyDelete
  2. maverickMonday, July 06, 2009 10:34:00 AM

    Hi Alex,

    The Edge Weekly today has an article with the title of "Possible Boon for Integrax" written by Jose Barrock. According to Jose, the land being acquired by Vale for the proposed iron ore distribution centre is located 11km southeast of Lumut, and 9km southwest of Sitiawan. If not mistaken, the location is very near Lekir Bulk Terminal(LBT). Not suprisingly, Integra opened higher today in reaction to the news.

    By the way, what do you think of PrkCorp? PrkCorp owns 50% + 1 share in Lumut Maritime Terminal (LMT). LMT is the maintenance and operation contractor of LBT. If the said iron ore plant takes off, do you think it will also benefit PrkCorp? Also worth noting is that Prkcorp is currently trading at a huge discount to its NTA of Rm 3.84.

    Thank you.

    ReplyDelete
  3. Alex LuMonday, July 06, 2009 10:51:00 AM

    Hi Teh,

    I think we are now seeing the Wave C of an 'A-B-C' corrective waves. The Wave A terminated on June 23rd after hitting an intra-day high of 1028. The Wave B lasted 3 days & made an intra-day high of 1082 on June 26th. How low would Wave C go? I will look at that shortly.

    ReplyDelete
  4. Alex LuMonday, July 06, 2009 2:48:00 PM

    Hi Maverick,

    Perakcorp (closed at RM0.58 on July 3) is a surprisingly cheap stock. Price to book is about 0.15 times. Trailing PE is about 4.5 times (based on last 4 quarters' EPS totaling 13.1 sen). Its financial position as at 31/3/2009 appears to be healthy, with current ratio at 3.5 times & gearing ratio at 0.25 times.

    Its chart is very similar to Integrax. It is likely to have bottomed. Good entry level is at RM0.50-60.

    ReplyDelete