S&P 500: 1987 Crash vs Feb 2014

1987 Crash
We had a great conversation earlier this week with one of our institutional clients regarding market tops & bottoms. Keep in mind, the most important and common trait all market tops and bottoms share is that they take time to develop. There is always a possibility that “this time is different,” or that we crash due to a major external shock but the chances of that happening are extremely rare. Rest assured, if this indeed turns into a major market top (like March 2000 or Oct 2007), you will be the first to know.
1987 Similarities:
There are a lot of similarities and some difference between 1987 and today.
 
Similarities: 1987 vs 2014
  • 1987:The Bull market began in August 1982 & Topped out 5 years later in Aug 1987
  • 1987: Two months later, the market crashed in Oct 1987, 62 months (just over 5 yrs) after the bottom.
  • 2014: The bull market began 5yrs ago in March 2009 & for now hit its high on Jan 15, 2014 (only 3 weeks ago).
Differences:
  • 2014: We are 59 months into this bull market.
  • 1987: The S&P 500 was -16.3% below its August high on Fri, before the crash. Today SPX is only -5.4% below its high
  • 1987: Crash occurred in Oct (almost 3 months after the Aug Top), Right now we are only three weeks from 2014’s high.
  • 2014: For now, The Fed & Other Central Banks are still printing money, albeit at a slower rate
  • 2014: For now, most moving averages are flattening out and some are turning lower. In 1987, the moving averages had turned lower and the major averages were trading on or below their 200 dma lines. Right now, only the DJIA is below its 200 dma line.
Bottom Line:

Bottom Line:
Until more (damaging) evidence occurs, the data suggests that Feb 2014 is not Oct 1987. Furthermore, it appears to be just another normal and healthy pullback within a broader uptrend. We do know that this bull market is aging as it celebrates its fifth anniversary in March. However, until the market begins to show definitive signs of weakness, it deserves the bullish benefit of the doubt.

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