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Jeffrey Saut: The call for this week

* November 28, 2016

Interestingly, two of the longest secular bull markets chronicled in our notes began following Republican “revolutions.” The 1953 to 1973 bull market sprung from Eisenhower’s election (1952) and the subsequent infrastructure spending. The 1982 to 2000 secular bull market commenced with Ronald Reagan’s election (1980) and was initially driven by his administration’s tax cut and de-regulation policies. Yet Reagan’s secular bull market had a slow start, which is eerily being tracked currently. When Reagan was elected the D-J Industrials rallied from ~925 to 1017 (+9.9%). Then in early December the Dow pulled back to 900 from where the fabled Santa Rally began. That rally took the Industrials back above 1000 by year’s end only to see stocks decline into February where on February 5, 1981 President Reagan stated, “We have inherited the worst economic mess since the Great Depression.” Of course with that kind of statement stocks bottomed, carrying the Dow back to 1024, which is when Fed Chairman Paul Volcker jammed the prime interest rate to 21½%. From there stocks stumbled, registering a Dow Theory “sell signal” that would leave the Dow at 776.92 in August of 1982, which happened to be the “valuation low,” and the 1982 to 2000 secular bull market began. This is not an unimportant point, for the Dow made its “nominal” price low of 577.60 on December 6, 1974 (the lowest it would go in terms of price), but its “valuation low” (the cheapest it would get) came eight years later (8/12/82). So fast forward, the Dow’s “nominal” price low came on March 6, 2009, but the “valuation” low didn’t occur until October 3, 2011. Now consider this, NOBODY measures the 1982 – 2000 secular bull market from its “nominal” price low (1974), but rather from its “valuation” low of August 12, 1982. If that’s the case currently, this bull market is not as old as everyone thinks. Indeed, this secular bull may not even have gray hair! Look for a short-term trading peak in this overbought market that sets the stage for the fabled Santa Claus rally.

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