Our friends over at dshort.com created this great chart showing where the US stock market is in relation to past bear market cycles. While the markets do not line up 100 percent, the correlation is still impressive. If you have been fortunate enough to see the movieÂ Trader with legendary hedge fund manager Paul Tudor Jones, you would have seen how Mr. Jones actively used these correlations on a daily basis and used them to predict the 1987 market crash.
A continuing correlation with past bear market cycles lines up with our long-term forecast. The Praxis Fund was created to take advantage of these short-term swings in the market over a longer term cycle. The 1966-1982 bear market had a similar pattern and numerous, tradable swings in the market:
The 1966-82 bear market did have a lot of movement. However, instead of that movement being upward as we saw in the 80â€™s and 90â€™s, it appears to alternate between one or two years of bull markets followed by a nearly equal one or two years of bear markets, repeating itself over and over again with what seems to be an invisible â€œlidâ€ over the up-market peaks. Just as an up-market approached the level of a previous peak, down it went again.
These bear market cycles are horrible for buy and hold investors. The total return from 1966-82 was 1 percent. However, investors who used an active money management approach fared much better during that cycle. This type of active money management — using a combination of technical, fundamental and historical analysis — is at the core of the Praxis Fund investment strategy.