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S&P 500: 1987 Crash vs Feb. 2014

February 18, 2014

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[I] had a great conversation last week with [someone] regarding market tops and bottoms. Keep in mind, the most important and common trait that all market tops and bottoms share is that they take time to develop. There is always a possibility that “this time is different,” or that we crash due to a major external shock but the chances of that happening are extremely rare.

1987 Similarities:
There are a lot of similarities and some difference between 1987 and today.

Similarities:

  • 1987: The bull market began in Aug. 1982 and topped out five years later in Aug. 1987.
  • 1987: Two months later, in Oct. 1987, the market crashed, 62 months (just over five years) after the bottom.
  • 2014: The bull market began five years ago in March 2009 and, for now, hit its high on Jan. 15, 2014 (only three weeks ago).

Differences:

  • 2014: We are 59 months into this bull market.
  • 1987: The S&P 500 was 16.3 percent below its August high before the crash. SPX is now only 5.4 percent below its high
  • 1987: The crash occurred in October (almost three months after the August top). Right now we are only three weeks from 2014′s high.
  • 2014: For now, the Fed and other central banks are still printing money, albeit at a slower rate.
  • 2014: For now, most moving averages are flattening out and some are turning lower. In 1987, the moving averages had turned lower and the major averages were trading on or below their 200 dma lines. Right now, only the DJIA is below its 200 dma line.

Bottom Line:
Until more (damaging) evidence occurs, the data suggests that Feb 2014 is not Oct 1987. Furthermore, it appears to be just another normal and healthy pullback within a broader uptrend. We do know that this bull market is aging as it celebrates its fifth anniversary in March. However, until the market begins to show definitive signs of weakness, it deserves the bullish benefit of the doubt.

 

The ideas and opinions expressed in this blog are those of the author, and they should not be perceived as investment advice or as any other kind of advice.

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