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An Analysis of the Fifth Cyclical Bull Market Within the 1929 to 1949 Secular Bear Market

(March 18, 2007)

Dear Subscribers and Readers,

Before I introduce our guest commentator, David Korn, I want to take some time out and put in my “two cents” with regards to the current condition of the U.S. stock market.  Based on the super-high NYSE ARMS index and CBOE put/call ratio readings we have been witnessing the last couple of weeks (which had been discussed in our commentaries), the fact that the valuations of U.S. large caps remain very decent, and the decent breadth of the stock market prior to the correction that began on February 27, 2007, chances are that the current cyclical bull market which began in October 2002 remains intact.

Of course, this author (as always) is just playing the probabilities here.  For now, however, the market should rally in the coming week – and depending on the strength of the upcoming rally, we will then reevaluate our 100% long position in our DJIA Timing System.

Make no mistake: I am not a “perma-bull” by any means.  I am carefully continuing to monitor the subprime market – and while the evidence currently shows that the chances of the current trouble in the subprime market “spilling over” to the economy are not very high, cracks are now starting to appear in the prime adjustable rate market – which is a big part of the so-called “Alt-A” market.  This is probably the most bearish sentence I have written in months, but I am going to have to say this: Despite the decent valuations in U.S. large caps and in financial stocks, there is no way the stock market or the economy can take too successive “hits” such as the current downdraft in the subprime market.  Should the situation in the “Alt-A” market become more serious in the days ahead, there will be a real chance the stock market will finally see its 10% (perhaps more) correction.  The resultant scenario may also cause the U.S. economy to teeter on the edge of a recession.  Moreover, the U.S. Dollar won't like it either, and in such a scenario, I would not be surprised to see the Euro retesting its all-time highs against the Dollar.  For now, however, we will continue to sit, wait, and watch.

Now, onto David's guest commentary!  David's newsletter is focused on personal finance, stock market timing, and independent stock market analysis. He also provides a summary and interpretation of the radio show Moneytalk, hosted by Bob Brinker; his newsletter has been published for nearly five years and has a very good investment track record, especially over the last few years.  David is also co-author of “The Retirement Advisor” – along with Kirk Lindstrom and myself.  This is his fourth commentary for  His very first guest commentary, "The Six-Month Market Timing Strategy" was published on May 8, 2005.  His last guest commentary, published on July 16, 2006, was a discussion revolving around the fourth cyclical bull market within the 1929 to 1949 secular bear market.  In a way, this following commentary from David is a continuation of his last guest commentary for us.

David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2007

Web site: 

March 18, 2007 Newsletter   


"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful."

Berkshire Hathaway 2004 Chairman's Letter


This portfolio is based on an asset allocation consistently entirely of equities (when fully invested).  It does not include fixed income (i.e. bonds) which would be more appropriate for some investors -- especially those approaching or in retirement.

25% Vipers (Ticker: VTI) Cost Basis: $108.24  

25% S&P 500 Index Depository Receipts (Ticker: SPY) Cost Basis: $101.33   

10% Spiders Select Technology (Ticker: XLK) Cost Basis $19.44 

4% Semiconductor Holders (Ticker: SMH) Cost Basis $36.94 

2% Plantronics (NYSE: PLT) Cost Basis: $23.95 

2% Time Warner Inc. (NYSE: TWX) Cost Basis: $17.80 

5% iShares MSCI Japan Index Fund (Ticker: EWJ) Cost Basis $9.80  

4% Sanofi-Aventis (Ticker: SNY) Cost Basis: $39. 

2% Microsoft (Ticker: MSFT) Cost Basis: $27.

21% Cash Held in Vanguard Prime Money Market Fund  (Ticker: VMMXX) (7-Day Yield is 5.09%)

DAVID KORN'S STOCK MARKET COMMENTARY:  I want to thank Henry To for the opportunity to provide this guest editorial.  Henry and I both love analyzing the stock market.  One of the topics that we often come back to is the cyclical nature of economies and stock markets.  Analyzing stock market cycles is something that I have always enjoyed and I thought I would share that with you today.


I am of the opinion that we are in a secular bear market.  The term “secular” in this context simply means long term.  You can have secular bear markets and secular bull markets.  For example, the U.S. stock market had an 8-year secular bull market from 1921-1929.  That secular bull market ended with the stock market crash in September of 1929.  Then began a very long term secular bear market which lasted from 1929-1949.  Following that, there was also a secular bull market from 1949-1966 that produced about a 500% move in the major indices.  We had a secular bear market from 1966-1982 and then we had the mother of all secular bull markets from August 1982 until early in 2000 which marked a 1400% gain.  Those were all secular periods with very long term trends in the market.


During secular (long term) bull and bear markets, there are often a series of shorter-term also known as “cyclical” bull and bear markets.  Subscribers of mine have seen my analysis of all the cyclical bull markets that occurred during the 1966-1982 secular bear market.  (If you would like a copy, just let me know). 

I believe that we are currently in a cyclical bull market within the context of a longer secular bear market.  Analyzing cyclical bull markets can be a very worthwhile endeavor to give you an idea of how markets fluctuate.  Given the recent correction the market has undergone, a study of past cyclical bull markets shows that such corrections not only occur but happen quite often with some degree of regularity.

With that as a backdrop, I thought it would be helpful to analyze the fifth cyclical bull market that occurred during the 1929-1949 secular bear market.  Why that particular cyclical bull market?  Mainly because it is one of the longer cyclical bull markets – comparable in time to the current cyclical bull market we are in that began on October 9, 2002 (or March 11, 2003 if you measure it from the retest). [Henry's note: David also devotes some brief commentary to the other cyclical bull and bear markets of the 1929 to 1949 secular bear market as well – please see below]

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Before you read further, it is necessary to take a moment and orient yourself.  We are stepping back in time to see how the market reacted in the most brutal secular bear market of the 20th century that lasted twenty years.  I suggest turning the lights dim, perhaps holding a penny and thinking you are Somewhere in Time

SECULAR BEAR MARKET (September 1929 - June 1949)


It has been a while since my last analysis, so let's take a minute and reflect on what the stock market was doing about 75 years ago.  We were in the roaring 20s and the stock market had gained 497% over an 8-year time frame.  The Dow had risen from 63.90 on August 24, 1922, to 381.19 on September 3, 1929.  People were as excited about stocks as they were back in the bubblicious days of 1999.

Cyclical Bear Market Number 1

And then along came Mary.   A vicious bear market began.  It was downright ugly as investors witnessed record one-day losses of 13% on Black Monday, October 28, 1929, and another 12% loss on Black Tuesday, October 29, 1929.  About two weeks later, the market bottomed (although not its ultimate bottom for this secular bear market).  On November 13, 1929, the Dow closed at 198.69.

Investors were despondent.  Their portfolios had been wiped in half in just over two months.  Things looked bleak, and investors were running scared.  Imagine how it was back in October of 2002, or even March 2003 as investors had suffered through the aftermath of the Internet/stock market bubble.  We were headed into war with Iraq, the fear of further terrorist attacks was ever present, and the economy was suspect.  Quite simply, the stock market was considered a very unsafe place to be invested, just as it was at the end of 1929.    

Cyclical Bull Market Number 1

Ok, we are back in November 1929, and the first cyclical bull market began on November 13, 1929, with the Dow trading at 198.69.  This bull market lasted about five months before reaching its cyclical bull market closing high on April 17, 1930, when the Dow closed at 294.07.  All in all, the Dow gained 48% during this cyclical bull market.  Investors were feeling good again.  Consider how investors were feeling in January of 2005.  The market had gained just about 50% from its bear market lows.  Unfortunately, back in 1930, things took a dramatic turn for the worse.

Cyclical Bear Market Number 2.

After peaking on April 17, 1930 at Dow 294.07, the market took a nose dive.  In just over two months, the Dow had declined almost 23% and closed at 211.84 on June 24, 1930.  Investors got a head fake over the next few months, as the Dow rose about 15% to 245.09 on September 10, 1930.  But the gains were short lived as the Dow crumbled to 121.70 on June 2, 1931.  One month later, the Dow went up to 155.26 (a gain of 27%), but it happened in 30 days, and was really just a temporary spike.  The market immediately resumed its bear market ways for another year, among what might well be the worse bear market our country will ever see again.  The carnage ended at Dow 41.22 on July 8, 1932.

Did you catch that?  From April 17, 1930 when the first cyclical bull market ended at Dow 294, to July 8, 1932 the Dow declined 86% over a 3-year and 3 month time frame! 

(Incidentally, I will be doing my analysis of cyclical bear markets in future newsletters once I finish the analysis of all the cyclical bull markets).

Cyclical Bull Market Number 2

The Dow began the second cyclical bull market of the 1929-1949 secular bear market at a price level of 41.22.  Hard to imagine now with the Dow above 10,000.   Investors were totally beaten down from the last bear market.  Investing in the stock market was probably the last thing on many investors' minds.  Of course, hindsight is 20/20, but when nobody wants stocks, that has often been the time to buy them.  Investors who could stomach the action in July 1932 were quickly rewarded,  The Dow began its bull journey with a hefty 68.3% gain in just over a month!  The volatility, however, was extreme and it was commonplace to see corrections during this particular cyclical bull market in the magnitude of 15%, 17%, even 20% over a relatively brief period of time.  Contrast that with what we have seen in terms of corrections since 2003.  The corrections we have been modest, most of them coming in around the 5-8% range.   Trust me, sitting through a double-digit correction is enough to make even the boldest bull sweat bullets.   This bull market lasted until February 5, 1934, when the Dow closed at 110.74, reaching its cyclical bull market closing high.  All in all, this cyclical bull market lasted 19 months.  During that time frame, the Dow gained 168.6%!

Cyclical Bear Market Number 3

Some market historians suggest that the prior cyclical bull market continued for another three years until February, 1937.  However, this ignores the 5 month period between February-July, 1932.  The Dow started that bear at 110.74 on February 5, 1934 and declined to 85.51 by July 26, 1934.  That marked a decline of 22.79%.  I count that as cyclical bear market #3, although obviously these labels are open to interpretation. 

Cyclical Bull Market Number 3

The third cyclical bull market began on July 26, 1934 with the Dow trading at 85.51.  The bull market lasted until the Dow topped out at 194.40 on March 10, 1937.  All in all this cyclical bull market lasted about two years and 8 months.  During that time frame, the Dow gained 127.36%!  This bull market had enormous gains.  During that time, the market had one correction of over 10%, with seven other corrections in the range of 3.11% to 9.7%. 

Cyclical Bear Market Number 4

Following the Dow's rise to 194.40 on March 10, 1937, a very tough cyclical bear market ensued.  The Dow fell to 98.95 in just over a year when the bear market ended on March 31, 1938.  This marked a decline of 49.1% -- similar to the bear market we had from 2000-2002 in terms of the percentage decline.

Cyclical Bull Market Number 4

The fourth cyclical bull market began on March 31, 1938 with the Dow trading at 98.95.  This bull market lasted about a year and a half and brought the Dow up to 155.92 on September 12, 1939.  This came about 8 months after the bull market had reached its prior peak of 158.08.

Cyclical Bear Market Number 5

The fifth cyclical bull market was a brutal one.   A seriously brutal one.  The Dow was at 155.92 on September 12, 1939.  Flash forward about 2-1/2 years and on April 28, 1942 and the Dow had fallen to 92.92.  That means the Dow was actually trading lower than where it had been four years earlier!  Would you have wanted to stay in stocks? 

If you hadn't sold out at the bottom, you were in for a very long and very profitable cyclical bull market which is where we begin our in-depth analysis of...

CYCLICAL BULL MARKET NUMBER 5 (April 28, 1942-May 29, 1946)

Date: Dow Jones Price (All based on closing numbers)

4/28/1942: 92.92

6/17/1942: 106.29

As the foregoing numbers show, the Dow began the fifth cyclical bull market of the 1929-1949 secular bear market at a price level of 92.92.  For the next six weeks, the market went on a tear with hardly a pause which is not unusual to see at the beginning of a bull market.  The Dow gained 14.38% in under two months before it underwent a minor correction.

6/26/1942: 102.54

In nine days, the Dow underwent its first correction, albeit a minor one of 3.53%.  For purposes of my analysis, this is about the smallest percentage decline that I even put in the category of a correction.  After this very minor decline, the bull was off to the races.

7/14/1943: 145.82

For a little over a year, the market basically moved up and up without any meaningful correction.  During that year, the Dow gained a whopping 42.20%.   There were probably a lot of profit takers along the way, but the market was on a tear.

8/02/1943: 134

The first correction of 1943 brought the Dow down 8.11% -- about the max percentage correction we have had in the current bull market.  This correction was quick, lasting just about 3 weeks.   

09/21/1943: 141.49

Following the 8.11% correction, the Dow rose 5.5%, but was unable to make a new high before undergoing another correction.

11/30/1943: 129.57

This correction was 8.43% -- almost identical to the last correction in terms of the percentage decline.  This time, the buyers lined up as a "double bottom" had been put in place -- something many market technicians look to when determining a good buy point for the market.

07/12/1944: 150.42

For the next 5-6 months, the Dow was moving up slowly, but basically trading sideways.  Then, as the summer of 1944 came on, the Dow rallied sharply to new cyclical bull market highs rising 16% off its double-bottom correction low.

09/14/1944: 142.96

Two months after reaching a new high, the market underwent an orderly correction of just shy of 5%.  That is pretty standard fare as far as corrections in an ongoing bull market are concerned.  The correction set the stage for a run to a new bull market high.

03/07/1945: 161.52

A gain of 12.98% from that correction brought the Dow well into new highs before its next correction.

03/26/1945: 152.27

In under two weeks, the Dow had declined from 161.52 to 152.27.  That is a 5.73% decline and again is a very typical correction to see in a bull market.  The correction setting the stage for yet another run to new highs.

05/29/1945: 169.08

08/07/1945: 161.55

Some patterns were developing in this bull market.  Following the decline in March, the Dow rose 11% to a new bull market high of 169.08.  Then, another correction of 4.48%.  This correction was a springboard for a very nice gain.

12/11/1945: 195.82

12/21/1945: 189.07

From August until December 11th, the Dow gained in excess of 20% when it closed at 195.82.  Following the new highs, the Dow underwent a very modest correction of only 3.45% in 10 days bringing it to 189.07 on December 21, 1945. 

2/5/1946: 206.61

2/26/1946: 186.02

Going into the new year, the Dow hit a new cyclical bull market high closing at 206.61 on February 5, 1946.  From there, the Dow declined 9.96%.  To me, that is close enough to call this a double-digit correction.  That is an important point because this would mark the only double-digit correction of this entire cyclical bull market.  Double-digit corrections require nerves of steel to not sell at the bottom.  It turns out that following this correction, the Dow went on to reach its bull market peak.

05/29/1946: 212.50

If you had the stomach to stay through the 9.96% decline, you would have seen the Dow gain 14.23% in its final run to the end of this cyclical bull market on May 29, 1946. 


Studying past bull markets, can give you the ability to gain a perspective on how the market moves.  Too often, we are unable to see the forest through the trees; or, we follow so closely, that we only see the trees without being conscious of the forest.

All in all, this bull market lasted four years and one month.  During that time, the Dow gained 128.69%.  This bull had your typical corrections which parallel what we have seen thus far in our current bull market.  In a few respects, the foregoing bull market resembles the current one we are in.  Both are exceptionally long cyclical bull markets.  Both bulls had relatively minor corrections in terms of percentage declines, and both produced very substantial gains. 

I hope you enjoyed this analysis.  Feel free to e-mail me with any questions at

- David Korn, editor of

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DISCLAIMER: The information contained in this newsletter is not intended to constitute financial advice and is not a recommendation or solicitation to buy, sell or hold any security.  This newsletter is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice.  Copyright David Korn, L.L.C. 2007.

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