Copyright © 2002 by Norman P. Poire. All rights reserved.

A lot of expressions get tossed around on Wall Street as though everyone was in agreement on just what they mean. Terms such as bulls, bears, booms, busts, and crashes, to name a few, mean different things to different people at different times. I find myself modifying my own definitions as my understanding of the financial markets evolves.

My mission in writing this article is to provide both the readers and the writers on this web site with a central reference for just what is meant when we use such terms. This should be considered a living document that I will from time to time update as becomes necessary.

Starting with the most used terms on the list, bull and bear markets have no hard and fast definition on Wall Street. Most folks say that stocks are in a bull market until a decline sets in that takes stocks down a minimum of 20 percent. The bull market resumes once prices appreciate 20 percent.

I prefer to use a simple algorithm that incorporates both price change and time. Here at Market Innovations we consider it a bull market if the 50-day moving average of the S&P 500 index remains above the 200-day moving average for a minimum of 50 days. A bear market is in place if the 50-day moving average resides below the 200-day moving average for a minimum of 50 days. Confirmation by at least one other major index (NASDAQ Composite, Dow Industrials, or NYSE Composite) is required.

These, by the way, are definitions of cyclical bull and bear markets. There is a whole other kind of animal out there called a secular bear market that lasts much longer and is much more devastating than a cyclical bear market. At least once in everybody's investing career one of these beasts rears its ugly head. I define a secular bear market as a record high in the S&P 500 index that stands for a period of at least 14 years, based on inflation-adjusted data.

The secular bear ends once the market makes its last foray into the "D zone" of the following chart (borrowed from my posted article entitled Fight the Fed). Obviously, one cannot know for certain that the secular bear market is over until a new record high is made -- long after the bottoming event has passed.

By that definition, there have been at least three such markets in the past 100 years. The first started early in the 20th century and ended in 1921. The second began in 1929 and lasted until 1949. The third covered the period from 1968 to 1982. For the most recent one, which I believe began in 2000, we are still awaiting confirmation.

An uptrend is a series of higher highs and higher lows. A downtrend is just the opposite; a series of lower highs and lower lows. Short-term trends last up to about 50 days, intermediate-term trends begin around 50 days and extend up to 2 years, and long-term trends exceed 2 years but are less than 8 years. Anything over 8 years is considered a secular trend.

Booms and busts fall into two separate categories. The Up & Down Wall Street column of Barron's ran a piece on January 8, 2001 that presented Marc Faber's definition of these terms that I find particularly useful. Marc is author of the Gloom, Boom & Doom Report. He separates booms into two distinct types: one is consumption-powered and the other is a new-technology-driven capital spending asset bubble.

He claims that a consumption boom typically ends in a recession that can be countered by cutting taxes and interest rates to help the consumer get back into spending shape once inventories are liquidated. The asset bubble is not so easily dealt with. Too much capital investment leads to production oversupply and asset values crumble. During the bust, rising bankruptcies and defaults on long-term borrowings (which financed the expansion) put pressure on real long-term interest rates.

These definitions fit very neatly with my own research of the markets. I call the consumption-powered boom and bust growth boom and growth bust. The new-technology-driven capital spending asset bubble gets broken down into technology mania and technology panic. My interpretation is that growth booms are tied in with the 56 year growth innovation cycle and appear every 28 years. Past examples include the 1859-1881 and 1897-1909 railroad booms, the 1921-1937 and 1949-1965 automobile booms, and the 1982-2000 computer boom.

Most of you will have already recognized the 1995-2000 period as an asset bubble where the Internet, computers, and telecommunications were the central drivers of capital over-investment. These are once-in-a-lifetime events that I believe are associated with an 84-year technology cycle. Prior such periods were 1830-35 (canals and railroads) and 1925-29 (automobiles, radio and moving pictures). After those two prior technology manias, real long term interest rates rocketed into double digits in the following panic periods. Thus far in the current technology panic long bond yields have yet to exceed 5 percent.

Market crash is also a term that gets tossed around without anyone ever explaining just what one is. I am reminded of Chief Justice Potter Stewart who wrote in 1964 "I shall not today attempt further to define the kind of material I understand to be [pornography]...but I know it when I see it..." Most everyone would agree that the 1929 and 1987 free-falls qualify as market crashes. Beyond that there is little agreement.

My own definition of a market crash is as follows: a 20 percent or greater decline from the high of day 1 to the low of day 2. Both the October 29, 1929 and October 19, 1987 crashes fall into this category. I also define a mini-crash as a 9 to 20 percent decline from the high of day 1 to the low of day 2. By that definition, there have been three such mini-crashes since 1965, all fairly recent: October 27, 1997; August 31, 1998; and April 14, 2000.

It is interesting to note that all of these crashes followed on the heels of a rather beefy buying panic that drove the S&P 500 higher by 20 percent or more over a 3-6 month period. Furthermore, every one of these occured either during a secular bull market (1987, 1997, 1998) or at the turning point of a technology bubble (1929, 2000). What may come as a surprise to many of you is that every single crash occurred while the 20-day moving average of the S&P 500 was above its 200-day moving average. In other words, each crash arrived while stocks were in an uptrend -- investors never saw them coming.

Posted July 2002
Last Revision October 2003

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