“Sometimes the market’s gentle slumber ends in a rude awakening.”
From an article in Barron’s, over the weekend

When will this market finally break out of its ever-so-boring trading range? And when it does, which way will it go?

128 Days and Counting: A Breakout Could Be Close

While anyone who claims to know the answer to the first question is pulling your leg, we can look at the past to have some insight into what it will do when it finally breaks

The stock market has been stuck in a “trading range” for all of 2004 a range of just 8% from low to high.What’s happened to stocks the last few times a long trading range has ended? Barron’s magazine answered that question for us over the weekend.

Here’s what they found

Stocks have been stuck in this current trading range for 128 trading days. Looking back, stocks got stuck in an 8% trading range for 80 days or more only 13 other times from Jan. 1, 1979 to the present.

It always seems like nothing happens in the markets during the summer and judging by the research in Barron’s, there’s some truth to that feeling: 10 out of the 13 previous long stretches of nothingness occurred over the summer, ending in July, August or September.

The same could happen again. Let’s take a look at the last two long trading ranges, to see how they ended

The last boring trading range lasted 90 trading days, from Dec. 14 to April 26, 2002. After it ended, the stock market was 18% lower six months later.

The boring trading range before that lasted 88 days, running from June to Oct. 9, 2000. Six months later, stocks were down by 17%.

When you just consider the last two breakouts from those trading ranges, the results are scary.

When you look at the big picture, it’s not as bad.

Again, going back to January 1979 (the last year before the big bull market of the 1980s and 1990s began), stocks were up an average of 0.5% three months after a boring trading range and, six months later, stocks were up an average of 5%.

A Bear Remains In Hibernation – Even After the Market Wakes Up

How can you reconcile the decent record between January 1979 and the present with the horrible record since 2000? I think it’s the difference between bull markets and bear markets

Throughout the 1980s and 1990s, we had the greatest bull market in history for stocks. Since 2000, I believe we’ve entered a long-run bear market or at least a period where returns on stocks won’t be that great for awhile.

So it is my feeling that the direction of the move after we leave the boring trading range will be down. It is the way of bear markets.

I have been recommending to my subscribers to position themselves accordingly urging them to play it safe with their investment dollars for much of the rest of this year. I urge you to do the same

Good investing,

Steve