Business Insider published an article today titled "The Stock Market Is About To Do Something It Hasn't Done Since 1995"
In the article it points out the following:
"All 10 sectors of the S&P have posted double-digit gains year-to-date, a rare market trait considering that it has been nearly 20 years since all 10 sectors of the S&P have registered annual gains of 10% or more," he added. "Indeed, the last and only time it happened was in 1995, following the equity blood bath in 1994, when the Federal Reserve brutally raised the Fed Funds rate six times."
I bring your attention to this piece of research because the faded memory of 1995 should be retuned and brought to the forefront of the investor consciousness for the remainder of 2013.
A little over one month ago I posted a study comparing the Dow of 1995 to today's market. We'll get to the technical points in minute.
Investor psychology of that time was very similar to today. Equities had just started to warm the hearts of the investing public again after contending with a post-1987 crash and early 1990s recession. The jaded memories of losses suffered in the past were still too fresh for investors fully commit, however. They were skeptical of Wall Street. Skeptical of future economic calamity.
The professional investors, fund managers, traders, analysts of the time were not much better. Much like today, they were confusing what was really the beginning of a bull run with what they perceived to be the end of a bull market. After all, from the low of the 1987 crash up to November of 1995 the Dow had risen close to 130%. Not unlike the Dow of today that has risen a little over 100% from the 2009 lows to November of 2013. The truth of the matter, as investors of all pedigree were soon to find out, was that the markets were only getting started.
From a technical standpoint, the most pertinent information as it relates to Q4 of 2013 is that during Q4 of 1995 the Dow experienced a powerful Q4 rally that drove the Dow up 8% following an extended consolidation. I outlined that point in this chart included in that article from September. A majority of those gains were experienced in November of 1995.
We are in an extended consolidation for the Dow. It is November of 2013. The correlations are vast and deep in nature. It is not a coincidence at all. Look into the trajectory points. Look into the sentiment at the time. Look into the attitude towards equity and the fears that the market instilled in the souls of investors. 2013 is 1995.
Bottom line: The coincidences between the periods are not coincidences at all. The rally we have experienced in 2013 is only about to strengthen. More importantly, the rally we have experienced from the 2009 lows is only really getting started.
