Chart o’ the Day: Don’t Be Shocked

Jon Krinsky of MKM Partners is out with his big 2015 preview piece this week and included is the below context vis a vis the current secular bull market that just may be the real thing (I’ll let you know in a decade).

He points out that, even if 2013’s break out of the old secular bear range is legit, history suggests that a 25% selloff – including a dip back into the old range – wouldn’t necessarily be fatal.

Here’s the current market with the breakout from the ’66 – ’82 bear in the bottom panel:

How Low Can We Go?
While the path of least resistance is higher in our view, it’s always important to view the potential downside risks. One analogy that we continue
to go back to is the secular bear market from 1966-1982. While the SPX broke out to all-time highs in 1980, it would then suffer a 27% cyclical
decline into the August 1982 low. That of course would be the start of the next Secular Bull Market. While we are not anticipating it, a 20-25%
correction off the recent highs would bring the SPX back to the 1675-1575 range which would simply be a re-test of the primary breakout point.

Screen Shot 2015-01-07 at 2.23.15 PM


Josh here – I’d also remind you that 20% corrections take place on average every three years and we get them in bull markets too. My first experience with this was in 1998, where the S&P 500 plunged 25% in a few months from the summer to the fall on exogenous events in Asia and Russia. The recovery was swift and the prior uptrend resumed with a vengeance.

In other words, don’t be shocked.


Technical Strategy: 2015 Outlook – An Ugly Start But The Bull Trend Remains Intact
MKM Partners – January 7th 2015

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