Australian (ASX) Stock Market Forum

Macro Cycles 2014-2018

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All Ordinaries Since 2000.

Periods where the All Ordinaries would have made 5% or more capital growth to today.

So you can imagine a 5% trend line where only those periods are below it.

ASX 5% Capital Growth.png

If a similar pattern continues, I think we're on the cusp of another block in the coming months.
 
Here's something interesting regarding U.S Markets that's relevent for where we are currently:

There have been 22 declines of 20%+ (since 1929) and all of them have happened with a:
- recession (19)
- world war (2)
- market crash (1)

There hasn't been a 20%+ decline without one of those happening since 1929.

The biggest have been 16, 19, 19, 19.

*These are calculated on closing prices, not intraday.

So if the trend continues, it could signify a behavioural pattern that people don't let the S&P500 close -20% without significant event.

It throws a spanner into the works, because the U.S is in the 3rd longest bull market (without -20%) and the expectation is it will hit that mark to reset the cycle. What could happen is that we've seen the predictive ability of the S&P500 in regards to recessions, so if it does reach -20% and it hasn't happened yet, history says it has an impeccable record at saying it's coming.
 
Doing some research on what happens once a market hits -20% from peak.

This is the S&P500 since 1929 and the returns for the following 3 / 6 / 12 months after -20% from peak is hit (rounded numbers from graph readings for illustrative purposes only)

3 month returns (%) +20, +15, +10, +10, +10, +5, +5, +5, +5, +5, 0, 0, 0, 0, 0, -5, -5, -10, -10, -10, -10, -15, -25, -30 = Average -1%

6 month returns (%) +50, +25, +25, +25, +20, +15, +15, +15, +5, +5, +5, +5, 0, 0, -5, -5, -10, -10, -10, -10, -20, 20, -30, -45 = Average +1%

12 month returns (%) +100, +50, +40, +35, +25, +25, +20, +20, +10, +5, +5, 0, -5, -5, -5, -5, -10, -10, -15, -15, -25, -30, -35, -40 = Average +5%

A lot less difference than I assumed, which could open up the strategy of dollar cost averaging over a similiar time period which would reduce volatility (as you can see from the best to worst cases) while performance is pretty much neutral for the first 6 months.
 
Had a look at the last 3 bear markets, and tried to find a trend in terms of timeline. I've drawn the most prominent bottom trend line in each, and then a vertical line to find the peak. You can see each of them start within a few months of the peak, so using similar rules, we'll project some for 2015:

ASX 2002

ASX 2002 Bottom Trend.png

ASX 2007

ASX 2007 Bottom Trend.png

ASX 2011

ASX 2011 Bottom Trend.png

ASX 2015

ASX 2015 Bottom Trend Projected.png

Doesn't really tell you anything new, intuitively you probably guess mid-high 4000s if things continue down and that's what it looks like the lines are indicating for 2015.
 
This is the 2007-2009 GFC from peak to trough.

The GFC in hindsight, follows my general expectations of a bear market. Around the -20% as the first phase, and then it needs significant economic trigger to take it further, which usually occurs within the next 6 months or so.

Screen Shot 2015-10-04 at 12.32.25 PM.png

Right now we're looking to see if we can reach that -20% on both the All Ordinaries and Dow Jones, and from there analysing the chances of recession / financial crisis type event.
 
While things look to be steadying at the moment.

Keep in mind in the last 100 years, a -30% decline period has passed across every decade in the ASX, and we haven't had one yet this decade and there's 4 years to go.

To illustrate some figures, from an XAO peak of 5950 in April, -30% takes us to about 4200.

If that doesn't occur and we reach a new peak, for a -30% decline to bottom out at current XAO of 5200 it'd need to reach 7400.

The caveat to all that is that the Dow Jones once went 28 years without a -30% decline, so there is no certainty of the trend continuing on the ASX.
 
shouldaindex said:
While things look to be steadying at the moment.

Keep in mind in the last 100 years, a -30% decline period has passed across every decade in the ASX, and we haven't had one yet this decade and there's 4 years to go.

To illustrate some figures, from an XAO peak of 5950 in April, -30% takes us to about 4200.

If that doesn't occur and we reach a new peak, for a -30% decline to bottom out at current XAO of 5200 it'd need to reach 7400.

The caveat to all that is that the Dow Jones once went 28 years without a -30% decline, so there is no certainty of the trend continuing on the ASX.
Click to expand...

Can you identify the period during the 1990s that the Australian market declined by 30% please?
 
OK - I found it. Jan 90 to Jan 91 represents a 30% fall in the value of the All Ords from 1713 to 1199.
 
AASE established in 1938

Milestones of the Australian Share Market

Australia's first stock exchange was established in Melbourne in 1861. Over the next few decades, additional regional exchanges were established in Sydney (1871), Hobart (1882), Brisbane (1884), Adelaide (1887) and Perth (1889).

All exchanges traded independently of each other until 1937 when the Australian Associated Stock Exchanges (AASE) was established, bringing with it uniformed listing and commission rules.

The following year, in 1938, the first share price index was published
Click to expand...
 
shouldaindex said:
While things look to be steadying at the moment.

Keep in mind in the last 100 years, a -30% decline period has passed across every decade in the ASX, and we haven't had one yet this decade and there's 4 years to go.

To illustrate some figures, from an XAO peak of 5950 in April, -30% takes us to about 4200.

If that doesn't occur and we reach a new peak, for a -30% decline to bottom out at current XAO of 5200 it'd need to reach 7400.

The caveat to all that is that the Dow Jones once went 28 years without a -30% decline, so there is no certainty of the trend continuing on the ASX.
Click to expand...

Nice thread here shoulda~

Not sure the 60's at least doesn't throw a spanner in your observation.

The data Mclovin refers to is based on monthly average figures and the chart below is an equity drawdown from all-time peak (not decade peak) of that data

Looking at that I would expect an all-time high before another major drawdown.

The only time we didn't hit new highs prior to then next major pull back was late 1870's and early 1970's and both of those time the initial draw down was no where as lengthy as this time.

History suggests current retracement is just one step back on the walk of worry to new all time highs unless of course this time it is different.:2twocents

Capture.JPG
 
Hi Craft,

I think the thin 30% drawdown around 1970 on your graph, is the one I counted as starting in 1969.

On the drawdowns, I've used data from the ASX historical:

black dots = 30% drawdown
pink dots = 20% drawdown

Click to enlarge:

ASX Drawdowns.jpg
 
shouldaindex said:
Hi Craft,

I think the thin 30% drawdown around 1970 on your graph, is the one I counted as starting in 1969.

On the drawdowns, I've used data from the ASX historical:

black dots = 30% drawdown
pink dots = 20% drawdown

Click to enlarge:

View attachment 64712
Click to expand...

O.k see where you get the decade observation - not sure arbitrary decades periods mean a lot though.

Here is another way to look at it (months since last drawn down by 30%+ from all time high)

Capture.JPG

Using month average data source from Wren Financial advisors.
 
House Price Growth looks to have peaked in 2015

http://www.theaustralian.com.au/bus...s/news-story/018bc71814023f080674dfd452c8113f

So let's look at previous peaks in the cycle:

House Price Growth Per Year with peak dots.png

House Price Peaks in:
1982, 1986, 1989, 1995, 1998, 2002, 2008, 2011, 2015

ASX Peaks (leading to 20%+ declines) corresponding with House Price Peaks:
1981, 1987, 1989, 1994, 1997, 2002, 2007, 2011,

You can see when there is a house price peak, there is an ASX Peak leading to a 20%+ decline close by.
 
XAO (gauge for ASX?) at 4770 is a 20% decline from year 2015 peak of 5963. XAO low of 4936 since peak was 17.2%. Another support test of 5000 points?
 
Seems inevitable IMO that, that 4700's level will be hit.

Housing and the Stock Market are both macro reflections so not surprised they move together, but sometimes there's a gap, so can be a nice indicator for the other.
 
Just to give some background on the nature of the lengths of bear markets (20%+ declines).

In the ASX since WW2, bear markets have taken the following amount of months to reach a bottom: 2, 2, 4, 4, 6, 6, 10, 10, 11, 12, 12, 12, 15, 17, 23, 24

In the U.S Markets since WW1 (data goes back further), bear markets have taken the following amount of months to reach a bottom: 2, 3, 3, 4, 4, 4, 5, 5, 6, 6, 8, 8, 8, 12, 13, 14, 17, 17, 18, 18, 21, 21, 26, 30.

If we make an assumption that the current peaks of the ASX in April 2015 and Dow Jones in May 2015 are in fact the bull market peaks for this cycle, it would mean we're already 9 and 8 months into a bear market.

That means out of the 40 bear markets covered in the sample, if projected onto the above dates would have resulted in a bottom being found between 2015-2017.
 
Another interesting piece of research I've found is that the last 8 bear markets dating back to 1984 on the ASX, all reached the -20% drawdown mark within 12 months of the peak.

We peaked in April 2015. Normally I associate December to April as seasonal strength (80%+ winning record) but obviously when the rest of that % occurs, it's usually due to a bear market, so adjusting to keep an open mind about that.

Something else to think about is that it's generally accepted that stock markets are forward looking about 6-9 months. So remember the April 2015 peak? Since then it's been 9 months and we've had China, Interest Rates, House Prices, Commodities (they were actual recovering early 2015) all with significant negative cyclical changes predicted accurately by the market.

So right now the market doesn't like the economic outlook for H2 2016, but as time goes on at some stage it will change it's mind 6-9 months before it happens, in theory.
 
Defining a Bear Market in U.S as -19% using closing numbers and ASX -20% using intraday numbers.

And Significant Events as a Recession / GFC / Market Crash.

U.S has had 15 Bear Markets since WW2: 9 With Significant Events and 6 Without.

ASX has had 16 Bear Markets since WW2: 8 With Significant Events and 8 Without.

So basically when you're asking 'when are we going to get a Bear Market?', you could argue it's when the market thinks the odds of a Recession (or GFC like 2008 or Market Crash like 1987) have moved to 50% or greater, given that is what history shows.

My completely subjective judgement is that we're not there yet, but things can move extremely quickly.
 
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