The following chart shows the inflation adjusted S&P 500 index going back to 1870 (click on chart for larger view). The blue lines show secular bull markets and the red lines show secular bear markets. Secular markets follow a 15 to 20 year trend on average.
The red line running through the center of the chart shows the historical uptrend. The tiny boxes show how far the market had to fall below the trend line to form a bottom and set the stage for the next bull market.
The average low during each of the past secular bull markets was 54.4% below trend line. Secular bear market bottoms usually see price to earnings ratios (P/E) well below ten with pessimism at maximum levels.
Today we are currently 45% above the long term trend line with maximum levels of optimism. Have we "cleansed" the market and formed the bottom of the current secular bear market cycle?
h/t Advisor Perspectives