The 100-yr Dow & the Next Big Thing

Secular trend Rules

A secular up trend will contain at least 5 bull and bear cycles and usually will introduce “The Next Big Thing” or the Dominant Theme, which will persist for 20+ years and eventually end with an asset bubble or a crisis.

A secular down trend will contain at least 3 bull and bear cycles one of which will be a Granddaddy Bear. The Granddaddy will be the largest bear in the series in terms of duration and magnitude. It is usually the 1st or 2nd bear and is typically introduced by a Crisis which in turn will kill the current “Big Thing”

Some past Asset Bubbles and Modern Crises

The first automotive boom of 1909 through 1927, the Nifty Fifty buy-and-hold bubble of the late 1960’s, the second automotive boom of 1946 to the Arab Oil Embargo of 1973-1974, the Dot Com technology bubble late 1990’s and the U.S. Housing Bubble of 2005 – 2007 and the Subprime Lehman Brothers crisis of September 2008.

Note the recent break of the Dow up and out of the 2000-2013 secular bear – likely driven by a new Dominant Theme – any suggestions?

Market breadth – a big test coming:

I think the last time I looked at the NYSE advance / decline line was back on December 24th, 2013 when I tabled this description - “The Advance / Decline Line (AD line) is one of the most widely used indicators to measure the breadth of a stock market advance or decline. The AD line tracks the net difference between advancing and declining issues. It is usually compared to a market average where divergence from that average would be an early indication of a possible trend reversal.”

At that time the S&P500 was at all time highs and the NYSE A/D was still not confirming the recent advance - a sign of thinning leadership. Subsequently we got a shallow correction in late January 2014 and in mid February the A/D line broke to new highs and in May the S&P500 followed and broke to new highs. Now here we are - once again - with both the S&P and the A/D line rebounding from a late July swoon and running back up to the early July highs. This will be an important test because we need both to break to new highs in order to continue the 2014 advance.

A P&F Breakdown on Valeant (2):

A quick update on health care component - Valeant Pharmaceuticals International, Inc which happens to be listed on both the Toronto and New York stock exchanges. A duel listing is a positive if US investors love you but, not so nice if US investors change their minds – which seems to be underway – right now.

On the prior post TSX listed Valeant  plotted on a point & figure (thanks to Stockcharts.com) – we saw the potential breakdown of support at the $126 range or about $116 in US dollars. I suggested if VRX trades down to $114 (US) the longs should take the money and run. Today – thanks to Stockcharts.com - on a P&F we can see the breakdown in the NYSE listed Valeant – with broken support at $114. The next lower support is now at the $104 level – with the next target being that lower primary trend line.