R.I.P. Bull Market, 1982-2008

What that model is showing now about the long-term bull structure of U.S. equities is unfortunately not a growing, healthy, thriving market. Let me be clear: I am not referring to the bull market that started in October 2002/March 2003 that went through the fall of 2007. What I am talking about is the long-term bull market that has been in place since the summer of 1982.

You might question me how can I say that there has been a bull market that lasted 25 years, when the decline from 2000 to 2003 took the S&P 500 down about 50% and the Nasdaq Composite nearly 80%. Everyone knows that a bear market is defined by a move of 20% or more down from a prior peak. Surely we had that 20% down move, qualifying these selloffs as true bear markets. Well, the proof is in the interpretation of the charts that define structure, not the textbooks written by academics who tell us what a bull or bear market is "supposed" to be.

Case in point: The chart below shows the S&P 500 on a monthly basis -- each single vertical bar represents an entire month's range. Pieces of my aforementioned favorite model are overlaid, creating a zone between the green and red lines (known to practitioners as the "cloud") along with a component that takes current price and lags it 25 bars (royal blue line) in time.

Here's what's immensely important to note from this chart: The selloff that bottomed in October 2002, although it broke the cloud zone, had the lagging line hold the bottom of the cloud zone. It thus held, though barely, its long-term bull structure. However, this has not happened in the current selloff; a close this month on Friday beneath SPX 1023 has that lagging line clearly beneath its cloud.

Monthly S&P 500 Cash Index

Click here for larger image.

Source: CQG

The proper conclusion, therefore -- and I don't like being the bearer of bad news, but I'd rather tell you how I see it than leave you thinking that all will be OK in the market -- is that barring a rather significant rally that brings the SPX back above 1023 by this Friday's close, it is now fair to say that the long-term bull structure of the market has been broken for the first time in 25 years. Therefore, sadly, I believe that one needs to become a seller on subsequent rallies for years to come.