The 12/06/20 post “Strongest Rally of the Bull Market” focused on a ten – year view of the S&P 500 (SPX) noting that the rally from March 2020 was stronger than the kickoff rally that began in March 2009. A longer-term perspective is needed to understand the power of the current US stock rally. The Dow Jones Industrial Average (DJI) has a longer history than the SPX and is an excellent index to examine the really big picture.
The monthly DJI chart courtesy of Trading View illustrates the current nine-month rally exceeds the nine-month rally after the major 2009 bottom. To understand the extraordinary strength of the current rally – a comparison of the prior ninety years is required.
The next monthly chart shows the percentage gains of powerful rallies since the major bottom made in 1932.
The strongest part of the bull market 2002 to 2007 was able to achieve a 41% gain over nine – months.
What about the blowoff phase of the 1999 stock mania? Only 49%.
The blowoff prior to the 1987 crash – 41%.
The kickoff phase of the bull market that began in 1982 comes close at 61%.
The Kickoff rally that began in late 1974 achieved 56% in seven- months.
The 1962 to 1966 bull market had only a 33% gain in a nine-month period.
During the mid-1950’s the US economy was in the strongest growth phase of the twentieth century. The DJI largest nine- month rally was 25%.
The kickoff of the bull market that began in 1942 had a 29% gain in nine-months.
You have to go all the way back to the super powerful 1932 to 1937 DJI rally which grew five times in value off the depression bottom. The initial move up had a 104% growth in only three months. In 1933 there was a 123% gain in five months.
Could the current DJI rally extend 100% or more? With continued stimulus from the US government, it possible. However, the 1932 bull market came after an 89% decline in thirty- four months. The DJI bull move that began in March 2020 came after only a 38% loss in just one month. Its logical to expect gigantic percentage gains after a severely depressed market. The current bull move is fueled by stimulus, at some point valuations will be excessive and additional stimulus may not be effective.
The first week of January 2021 the US stock market could make at least a short-term top similar to the penultimate peak made in January 2010. The short-term Elliott Wave pattern since the 10/30/20 bottom appears to be nearing completion. Be prepared for some degree of turn coming soon.
Investors and traders are long non leveraged SPX related funds as of the open of trading on 11/03/20. Continue holding.
To all have a Happy New Year!