Stock swings may signal bull run is in its last throes

Tue Dec 23, 2014 12:24pm EST
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By Jamie McGeever

LONDON (Reuters) - Stocks are showing the kind of volatility that preceded major falls in the past, suggesting to some that one of the most blistering U.S. rallies on record may be nearing its end.

The market is undergoing big swings under the influence of plunging oil prices and resulting turmoil in Russia, as well as the Federal Reserve's only gradual shift away from ultra-low interest rates and - on Tuesday - data showing a sharp acceleration of the U.S. economy.

The series of short-term rallies and selloffs has revived memories of events before the "Black Monday" crash of October, 1987, and more recently the global crisis of the past decade.

The S&P 500 has more than trebled from its post-crisis low of 666 points in March 2009 .SPX. The Dow Jones Industrial Average .DJI climbed above 18,000 for the first time after Tuesday's data showed GDP grew at an annualized 5 percent in the third quarter, the fastest rate in 11 years. That means the Dow has gained 1,000 points in just one week.

Larry McDonald, senior director and head of U.S. strategy at Newedge in New York, noted wide price swings before deeper and longer-term declines as previous bull markets ran their course.

"You had a lot of this in the summer of 2007 and the summer of 1987," he said. "Our systemic risk indicators are showing a very high scoring in terms of risk. I think we are anywhere from two to eight weeks away from the big one – a fall of 10 percent or more."

A 10 percent reversal in markets is often termed a "correction".

Already on Monday the S&P and Dow had both notched up yet another record closing high. For the S&P it was the 50th this year, the most in any year since 1995.   Continued...

Traders work on the floor of the New York Stock Exchange December 18, 2014. REUTERS/Brendan McDermid