Seasonal Bias?

Normally I am a big believer in seasonal bias but I also believe that we are in a long term secular bear market and that should take precedence over all else. This means that we should be extremely careful in guarding our capital as a secular bear market will strike when we least expect it and in ways that we least expect.

A major theme for me is that we have only seen one other true secular bear market in U.S. Stock market history and that started with the crash of 1929 and bottomed in July of 1932. This time will be different, of course, but will use the same tactics.

One difference is that it will be longer in duration. The run up to 1929 with 8 years; the run up to 2007 was at least 25 years and possibly 33 years, if you consider the secular bull market as having started in 1974. This suggests a minimal bear market of 7-8 years with a possible 10-11 year correction. But I believe we can also take a longer term view of the secular bull market as having started in 1932 and that we may see an extended slow growth period that lasts until 2030. This fits in well with our demographic issues.

But back to the seasonal issue: If you look at the decline from 1929 to 1932 you see that there really are no clear seasonal biases. An argument to that is that because the decline was so steep over such a short period of time that the stock market simply did what it had to do to get where it had to go while this time around the decline is much more leisurely. The counter to that is that the stock market must use everything at its disposal to destroy wealth and that it seems that we are starting to see unusual seasonal moves. The low in July makes sense but prior to that and since then we have seen the market move in seasonally unexpected ways.

They only answer up front is to protect your capital. When you take a shot at a short or a long, make sure you have a clear exit strategy.

--Fred