United States stock market investors and traders are interested to understand future market conditions and ultimately the upcoming price action of their chosen investment vehicles. While future market movements are not certain, we can draw conclusions about trends that link past events to the present and thereby forecast the future. We can consider financial markets over many intervals of time starting from minute to minute changes in price to multidecade charts depicting monthly changes in price. When considering any market or individual security in such a market, there are four major categories of trend on which to focus: short term, intermediate, primary, and secular. Smaller short term waves combine to form longer duration intermediate waves. These intermediate trends combine to form primary trends which themselves make up larger secular trends. Table 1 shows the typical durations of each trend category.
Examination of secular trends provides an excellent perspective for understanding our current position in the financial markets. For this analysis, we used monthly charts of the New York Stock Exchange Composite Index (NYA), Wilshire 5000 Total Market Index (WILL5000IND), Dow Jones Industrial Average Index (DJI), S&P 500 Index (SPX), and NASDAQ Composite Index (IXIC). Figures 1 through 5 show the charts below. The NYA and WILL5000IND are broad collections of stocks designed to encompass all market sectors and actively traded stocks. DJI and SPX are two of the most widely followed market indices in the world. Uniquely, SPX is the standard against which all professional money managers are measured. NASDAQ is also a broad index including companies from all major market sectors, but the weighting heavily favors technology companies; in fact, the technology sector makes up around 55% of NASDAQ overall weighting.
FIGURE 1 - monthly chart of York Stock Exchange Composite Index (NYA) with secular trend lines
FIGURE 2 - monthly chart of Wilshire 5000 Total Market Index (WILL5000IND) with secular trend lines
FIGURE 3 - a monthly chart of Dow Jones Industrial Average Index (DJI) with secular trend lines
FIGURE 4 - monthly chart of S&P 500 Index (SPX) with secular trend lines
FIGURE 5 - a monthly chart of NASDAQ Composite Index (IXIC) with secular trend lines
Interestingly, all indices show evidence of a secular bull market that began in March 2009 during the dark days of the tumultuous Great Recession. All five indices clearly show the March 2009 low as the starting point for the current secular trendline which extends to the March 2020 low during the Covid-19 pandemic. Because secular trendlines are in effect for one to two decades, they are a source of constant guidance during the turbulent conditions sometimes visited upon market participants. We have codenamed the current secular wave Jawbreaker for ease of discussion. The name pays homage to the powerful bullish force which was able to hold and reverse abrupt and severe market conditions developing during October 2008 and again in March 2020, two bearish bites broken by the dynamism of the American economy. Refer to Figure 6 for a weekly chart showing the Jawbreaker wave.
FIGURE 6 - a weekly chart of the "Jawbreaker" bullish secular wave with eight primary waves within this uptrend. The six bullish primary waves are shown in light green; the two bearish primary waves are shown in light red.
Within the Jawbreaker wave, eight primary trends can be identified. Six of the eight trends are bullish; two are bearish. Table 2 shows the dates and durations of the six bullish primary waves, and Table 3 shows this data for the bearish primary waves. Figure 6 shows these primary trends. During secular bull markets, bullish primary waves are longer in duration and more numerous than bearish primary waves. Bearish primary waves will occur during secular bull markets, but they will be infrequent with minimized durations. Jawbreaker follows these maxims. At this current point in September 2023, Jawbreaker has included five primary bullish waves with an average duration of 26.2 months. There have been only two bearish primary trends which lasted 14 and 12 months. The first bearish period was a sideways consolidation which is to say there has been only one negative primary trend, almost the entire 2022 calendar year where the S&P 500 lost roughly 13% of its value.
We are currently in the eighth primary wave which began in October 2022. If we consider the average primary bull market move during the secular Jawbreaker trend to be 26.2 months, our current primary wave may stay in effect for well over another 12 months. The month of August 2023 has been rough for the market which is a seasonal trend itself. Despite the summer bearishness, the current primary trend is young enough to carry the S&P 500 into our predicted year end range of 4500 to 5200. Given the fact that we currently sit at 4320 on the S&P 500, the current summer retracement is likely a buying opportunity to lock in at least another 6 to 7% gain before year’s end.
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