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100 years of Market Cycles

Market Analysis


1984 Market Correction

The 1984 market correction occurred during the 1982-1987 bull market with the market declining 13% over a 10-month period.

Market corrections are similar to bear markets, but are less severe. For the purposes of this analysis, bear markets have a minimum decline of 20% over a minimum period of six months (most last for a year as a minimum) with at least one bear rally (which are short rallies within a bear market).

This market cycle had no bear rallies, it lost only 13% and it resembled a long drawn out pullback having lasted 10-months. Pullbacks are much shorter and range from a month to several months (with five months being quite long for a pullback). This cycle is more accurately referred to as a market correction.

Charts from stockcharts.com are used to analyze all of the market cycles that have occurred over the last ninety years. Analyzing the market cycles with charts gives stock investors a visual representation of how the stock market moves over time.

The S&P 500 index is the industry benchmark and is used to analyze the 1984 market correction and all market cycles from 1957.

The S&P 500 index was introduced to the stock market in 1957 and the index included back tested data to 1925 based on the historical prices of the stocks that made up the index. This provided historical data for comparison with the Dow Industrial Average.

90 Year Market Chart

The following quarterly 90-year bar chart shows the 1984 market correction which occurred during the 1982-1987 bull market.

Chart 90yr: 1984 Market Correction

The 1984 market correction on a 90-year chart for the S&P 500 index plotted as a bar chart with quarterly bars.

As can be readily observed from the long-term 90-year market chart, the 1984 market correction is just one of many corrections and bear markets that have occurred over the last one ninety years.

The 90-year market chart also shows an 80-quarters (20-year) simple moving average which has spent most of the last ninety years trending upwards. This shows that over the long-term the market has broadly continued higher as the moving average followed the S&P 500 index higher.

20-year Market Chart

The following chart shows the 1984 bear market on a 20-year chart with the S&P 500 index plotted as a monthly bar chart.

Chart 20yr: 1984 Market Correction

The 1984 market correction on a 20-year chart for the S&P 500 index plotted as a monthly bar chart.

A 12-month simple moving average is also plotted on the 20-year market chart. The 12-month moving average is a useful indicator used in Technical Analysis for highlighting market cycles.

As the 20-year market chart shows, the 12-month moving average flattened during the 1984 market correction, while the moving average spent the rest of the 1982-1987 bull market sloping upwards.

The 1984 market correction was really nothing more than a long drawn out pullback that only temporally paused the bull market.

Most investors new to the stock market are under the impression that the stock market only moves in the direction of the current market cycle.

In reality, the stock market moves in cycles and alternates between bull markets (where stock prices broadly increase) and bear markets (where stock prices broadly decline).

Fortunately for investors, bull markets are usually longer than bear markets. This means that stock prices spend more time increasing in value than they do losing value.

Bull markets last anywhere from two years to around a decade, whereas bear markets are shorter and usually last a year or two and sometimes three.

3-year Market Chart

The 1984 market correction is shown again with a shorter time-frame on a 3-year chart plotted as a weekly bar chart.

Chart 3yr: 1984 Market Correction

The 1984 market correction on a 3-year chart for the S&P 500 index plotted as a weekly bar chart.

The shorter time-frame provides more detail. As the chart shows, the 1984 market correction occurred during the 1982-1987 bull market. The S&P 500 index lost 13% over a 10-month period.

Market Chart: Rallies and Pullbacks

The 1984 market correction is shown again with a 3-year line chart and two moving average indicators.

Chart MA: 1984 Market Correction

The 1984 market correction on a 3-year chart for the S&P 500 index plotted with a line chart and two moving average indicators.

The above line chart for the S&P 500 index shows a 52-week (long-term) and a 12-week (short-term) simple moving average.

The 52-week moving average (purple line) turned downwards during the market correction that occurred during the 1982-1987 bull market.

The 12-week moving average (orange line) broadly identifies the rallies and pullbacks that occurred.

The market correction started in September 1983 (noted on the chart with the first RH - which stands for Relative High) and the prolonged pullback finally ended in July 1984 (the 2nd RL - Relative Low).

The 1984 market correction looks like a pullback on the chart, but due to the lengthy 10-period, it's more accurately referred to as a correction.

The 1987 market crash finally ended the 1982-1987 bull market, whereas the 1984 market correction merely paused the bull market before it resumed.