Bull Markets That Follow Epic Bears

The gold mining stocks continue to defy any bearish price action or perceived bearish development.

Pundits first warned because of the “bearish” CoT data. The commercials are always right and a big decline is coming! Then we heard the miners were too overbought and would have to correct 20%. (I thought this once or twice!) Next we heard Gold was forming a head and shoulders top. Conventional analysis is failing in trying to predict or even explain what is happening and why.

A look at history helps explain why the gold mining sector has remained extremely strong and almost immune to any sustained correction. Simply put, history shows that epic bears give birth to bull markets that in their first year do not experience any significant correction or retracement.

The Nasdaq, which is comprised of mostly tech stocks crashed 78% during its bear market from 2000 to 2002. That epic bear followed a full blown mania and a strong recovery followed that epic collapse. The Nasdaq rebounded by 94% in 15 months and only endured one significant correction during the recovery. That 17% correction occurred while the market was in a bottoming process. Once the Nasdaq exceeded 1400 it enjoyed smooth sailing to 2100 over the next nine months.

June172016Nasdaq02

The next chart plots the S&P 500 and the Nasdaq from 2008 to 2011. The bear market in price terms was the worst for the S&P 500 since World War II. Its recovery was equally as spectacular as the index gained 83% in 13 months without correcting more than 9%. During the same period, the Nasdaq doubled and did not shed more than 10%!  

June172016SPXNaz2009

Speaking of World War II, it kicked off the best buying opportunity of all time as the stock market enjoyed fabulous returns over the next year, three years, five years, 10 years and 15 years. The stock market declined 60% over the previous five years. It was the longest bear market in modern times and the second worst in terms of price. During the ensuing recovery, the S&P 500 gained 70% in 14 months and did not correct more than 5%. It also held above its 50-day moving average nearly the entire time.

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Plunger 9 months ago Contributor's comment

Very good observations. Your approach and findings are consistent with what I have proposed from a different method. I have seen this as a Phase I of a new bull and in that phase stocks return to "known Values" which I have suggested are around HUI 350, where the point of recognition was in both the preceding bull and bear markets. Also like the bull of 1982 in the general stock market stocks took off and didn't correct for 17 months.

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