So, what are you thinking about the markets now? Is the correction that we have been through still too much on your mind? Are you thinking about moving out of the markets based on some commentary by alleged experts? Our emotions sometimes get in the way, perhaps we’re concerned about a retest of the previous lows or even worse another down leg that is worse than what we have already experienced. If you are watching the markets every day it’s easy to get caught up in the daily hype that comes from market analysts.
Perhaps it’s better to step back and take a longer-term view of the markets and not get caught up in daily gyrations of the markets. Focusing on longer-term time periods can be useful. Watching the market on a weekly basis is sometimes better than watching the erratic actions that are found in daily charts.
Let’s take a look at some weekly charts.
Most people understand the way long-term markets work. We tend to have long periods where the bull market remains in place. These bull markets are usually driven by new technology advances. In the 40’s through the 60’s, it was all about plastics and electronics. From 1980 through 2000 it was the invention of the internet and personal computers.
The time in between, from the mid 60’s through the early 80’s, was a period of consolidation. This was a time where overvalued markets were able to settle into more reasonable valuations. This very long consolidation led to a very long and sustained bull market, rallying from 1983 through 2000. The only major blip occurring in 1987, during the monetary crisis.
I’m going to layout the framework for a continuation of this bull market. The only caveat, as I’ve mentioned before, is what the Fed has done with quantitative easing. They printed a lot of money and have controlled interest rates. This has never been done before, so we really don’t know the consequences of those actions. With that in mind let’s take a look at an index that measures all of the stocks in the stock market.
This index is not overly influenced by a few leading stocks, it gives us a view of the average stock in the stock market.