Secular Technical Analysis Indicators
Two or more economic or stock market cycles, normally lasting 20-30 years
Secular technical analysis indicators measure the long term. In general, they can only tell you how old a cycle is, rather than when it might change. Thus, a bearish reading in a secular indicator alone would not cause the technical analyst to become bearish on stocks in general.
Secular technical analysis indicators can be classified into two groups:
Asset allocation technical analysis indicators
Asset allocation technical analysis indicators look at the way in which individuals and institutions are structuring their portfolios.
At the beginning of a secular uptrend, people generally own very little stock and have most of their money in bonds and cash. Over time, money will flow into equities.
Thus, the more money in equities, the older the trend.
Data on asset allocation is obtained from the Federal Reserve’s Flow of Funds statistics.
Valuation technical analysis indicators
Valuation technical analysis indicators measure people’s confidence in stocks.
Among the most popular valuation measures are multiples and yields.
For example, when people are willing to buy and hold equities with historically low yields or with very high P/E multiples, it tells us they are very bullish on the appreciation prospects for stocks. Payout ratios are also important. The optimism implied by low yields would be diluted somewhat if payout ratios were also low.
Key Secular Technical Analysis Indicators
- Federal Reserve Flow of Funds statistics.
An equity reading of 40% for pension funds and institutions (20% for individuals) would be low (bullish), and 60% (50% for individuals) would be high (bearish).
Yields less than 3% show excessive optimism, above 6% show excessive pessimism. Multiples above 20 are bearish, below 10 are bullish.
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