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We are at the beginning of a prosperous stock market rally

People are worried about today’s market and they think we are heading towards a recession.

But their view is most likely obstructed by a short term bias and previous pain experience.

They remember 2003 crash, they may remember 2008 crash, only a few experienced 1980 – 2001 rally, or 1950 to 1960, and all only heard of 1930 crash. Those who remember 2008 crash tend to compare everything to what was happening during those days. They are comparing metrics of the market and economy of those days. But their view is obfuscated by a short term bias.

So let’s step out and let’s take a look at the markets from a bit farther distance.

That distance will help you see different patterns and different perspective.

We know that mostly the markets move up, then sideways and up again. The sideways moves called consolidations may take very long time. The last one, from 2001 took more than a decade before we finally broke up. That period was called a “lost decade” but recently we broke up from that pattern, re-tested it and turned up. We never returned back into the box.

Our previous rallies were in the range of 800% to 100% before the market entered a consolidation phase. Thus we may expect another period of 800% to 1000% growth over a period of several years (10 to 20 years +/-) before the market enters another consolidation phase.

Of course, there will be bumps on the road but it is very unlikely that we will see any major correction and crash in the next decade or two. Patterns repeat so we give 80% chance that this pattern will repeat again.

When evaluating the market and deciding to listen to all doom and gloom predictors it pays to step out and gain some distance to see the whole picture. Of course, we should review the long time frame as well as short term frames as we do not invest for the next 100 years but next 10 to 30 years only. But reviewing the entire pattern may help you in recognizing in which phase your life span will be in regards to the market and then select a proper investing strategy. If you lived and saved money during the “lost decade” owning 100% stocks could hurt you. If you are just starting, you will experience a golden age of investing in the next 10 to 20 years.

To identify a proper market phase from a bit bigger perspective, let’s see the chart below.

 
Weekly Results
 

Many people are scared of today’s market. Many predict it to crash again. They are trapped in a recency bias.

Here is a picture of one of the Facebook member who was saying “what if we see the following”:

 
recency bias
 

This is a perfect example of a recency bias.

Compare distances, compare averages back then and today. We are not in any slowdown nor reversal. We just broke from the pattern in 2015. If the previous runs were 20 years in average and consolidation phases about 20 years in average too, we may expect 20 years uptrend before the market goes to another consolidation. We are only 3 years out of the previous “difficult” market phase.

Also, people say that the last “bear market” was ten years ago in 2008 so it is time to crash again. The definition of a bear market is that it must go down by 20%. In 2012 the market went down by 19.98% and stayed there for six months. Was it a bear market? And why not? Because it missed the definition by 0.02%?

Of course there will be corrections and secondary bear markets (like the one in 2012) on the road but not a primary bear nor crash.

Our problem is that I would say all of us (with a very little exceptions) we are all bound in a short term bias when looking at the markets. Almost all of us have our charts set to what? YTD time frame? 9 months? 12 months? And how many look at the older data? 5 years? 10 years? And when we look at the older data, we still use our 12 month bias to evaluate the market and missing completely the entire big picture.

To evaluate whether the market is in a healthy state or sick state we really need to be able to step far far away and look at the market from 100 year bias. Then you will start seeing a completely different picture.

All data I could see myself so far point to a high probability that we are at the beginning of an expansion which may last up to 30 years.

Here is Ciovacco channel:

 

 

I strongly recommend you to watch this video if you suffer from recency bias and think this market is doomed to crash.

He does a good job to look at the market from a distance (as a long term investor) and provides in my opinion excellent ways to compare different market periods to determine whether we are repeating 2007/2008 pattern or not. I strongly recommend seeing it. His videos are not for every day investing or trading but establishing healthiness of the market and trend. Are we heading into a trouble or are we good? Are we in reversal or at the beginning of something bigger? Are we in a “difficult market” or “easy market”? This helps you to establish the bias and select a proper strategy – should you go bullish or be hedging, or bearish?





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