Friday the market was down 370 points (2.7%). It also happened to coincide with the 20th anniversary of the 1987 market crash.
There are gigantic differences between the market in 1987 and the market in 2007. In 1987, inflation was 5%, long-term interest rates were at 10%, and the S&P 500 was more than 30% overvalued.
Today, inflation is around 2%, long-term interest rates are around 5% and the S&P 500 is not overvalued at all — in fact many will argue that it is undervalued.
From a point and figure perspective, in 1987 the market was on defense the market and had been on defense for nearly 6 months (an usually long period of time), and most sectors were out of favor, quite negative.
Also, sector breakdowns, multiple sell signals and support line breaks occurred on a near-daily basis throughout August and September 1987. Pretty depressing.
There was plenty of advance notice.
At the moment, the market is on offense. And many sectors are in a positive trend. There are still some issues in banking, finance and real estate — these sectors make up nearly 30% of the S&P 500.
It doesn’t mean things are completely rosy. There were a TON of breakdowns the past few days.
Look, the market’s been through an extremely good run for the last seven or eight weeks. Remember, we measure daily, weekly and monthly momentum. In many cases you’ll see a stock, a sector (or the entire market!) move in one direction for 6, 8, (sometimes) 10 weeks in a row.
This looks like a pause in a longer-term uptrend. But if conditions change (and we’ll know that from our indicators), you’ll be hearing fom us immediately.
Tom
Thomas Mullooly
Mullooly Asset Management LLC
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