Is the bull market getting long in the tooth?

"Bull markets don't die of old age," warns Jim Stack, market historian and president of InvesTech Research, one of the most successful investment newsletters over the long run. But Stack quickly points out that if the current bull market continues into the middle of next year, it will become the second longest bull market in modern history.

Stack's views are worth listening to. I was in the audience at the March 2009 Moneyshow in Orlando, Florida when he told a shell-shocked crowd with the Dow under 7,000 that the next bull market had already begun _ a forecast which I dutifully reported in my column. And I was there at the 2015 Moneyshow earlier this month when Stack gave his analysis of when this bull market is likely to end.

The audience of more than 1,000 investors sat at attention throughout the presentation. (For details in Stack's newsletter go to He uses a combination of historic research, technical indicators and some time-tested but unusual indicators, including magazine and newspaper headlines proclaiming the investment extremes.

Historic Trends and Technical Indicators

Starting in early 2009, the current bull market already has lasted just under six years so far. It is exceeded by the bull market that started in 1990 and lasted nearly nine and a half years. The other long bull market in recent times started in 1949 and lasted nearly seven years. According to InvesTech Research, the median duration of a modern bull market is 3.6 years, so we are already in an aging bull market.


But if aging bulls don't die because of the calendar, what warnings should you look for signaling trouble ahead? Stack has researched a number of indicators _ and many of the most important are still showing positive trends at the moment. Many depend on the economy, and Stack has created a long-term chart illustrating that bear markets and recessions coincide. So if the economy is strengthening, there is less fear of the bear.

Consider these two:

• Leading Economic Index:Stack reports that since the 1960s the LEI (which is calculated based on 10 components, including the stock market) has typically peaked at least eight months or longer before a recession, and market decline. But today, Stack notes, the LEI is making new highs and even accelerating to the upside.

• Consumer confidence:Confidence leads to consumer spending, which comprises two-thirds of GDP. So when consumers are confident, there is less chance of recession and bear markets. The two popular measures of confidence are surging. The Conference Board measure is now back to pre-recession levels. And the University of Michigan survey recently surged to an 11-year high.

Stack notes that falling energy prices will put between $700 and $1,000 in the pocket of the average family.

On the other hand, some of his more technical indicators are flashing warning signals. Stack notes that the median price/earnings (PE) ratio of all stocks is at a record level today _ higher than before the tech bubble burst. And margin debt has risen "parabolically" to record levels _ something that always happens near market peaks.

Still, Stack says, valuations don't cause bear markets. They simply make markets more vulnerable to a decline caused by some external shock, whether higher interest rates or major changes in government policies, such as taxes or currency policy.

Headlines Usually Wrong


Perhaps one of the most compelling indicators Stack uses is a measure of public sentiment present in the headlines of leading business magazines. He has a collection dating back to the 1920s. And though it looks laughably obvious in hindsight, those magazine covers always appear at extremes.

There was the Business Week cover of February 14, 2000 — just days before the market peaked. On the cover was one word: BOOM! And now in recent weeks, Stack says headlines in Bloomberg, Reuters, The Economist and the Washington Post have all used the word "boom" — a worrying trend!

If history repeats itself, these proclamations could be one sign of an impending top in the stock market.

Stack refuses to prognosticate. Instead, he lets his indicators direct his market decisions. But he says it pays to be a bit defensive in the seventh year of a bull market, avoiding high-valuation stocks that are likely to be hit hardest and fastest in a market decline. He reminded the audience at Moneyshow that the indicators should give a warning period that could last six months, allowing investors to rearrange their portfolios before suffering huge losses.

"This," he says, "is not market timing. It is risk management." That makes all the difference. And that's The Savage Truth.

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