A really interesting long-term chart that contextualizes this market rally

Discussion in 'Trading' started by brettman9, Sep 15, 2009.

  1. The broad equities rally that has taken place since March 6 is now the fastest 50% advance (26 weeks) for the Dow Jones Industrial Average since 1975, when the Dow shot 52% higher in just 22 weeks. At the time, that was the fastest such rally since early 1938, when the average moved 50.4% in a mere 16 weeks.

    And these two comparatively similar rallies have more than just speed and magnitude in common with the present move. (see attached Monthly DJIA logarithmic chart as companion to bullet points below).

    - In each case, a secular bull market had concluded almost exactly 9 years -- or ~108 months -- earlier (1929, 1966, and 2000, respectively) marking the climactic stages of a period of grand secular expansion now remembered as an historical milestone of remarkable prosperity (the 1920's, 1960's, and 1990's each set records as "the longest uninterrupted period of economic expansion in US history" when they occurred).

    - In each case, that 9 year period concluded with a precipitous stock market collapse that lasted between 1-2 years and slashed the Dow by 45-55%.

    - And, as mentioned above, in each case, the low that formed about 102-107 months after the secular bull top was followed by a rally that gained roughly 50-55% in the following 6 months. These three rallies represent the strongest 6 month moves in stock market history since 1933.

    This would suggest the long-term picture is a period of disenchantment with the stock market for a few years, and then (hopefully) the beginnings of a new secular bull.
  2. Interesting chart. Would be more interesting if it was real $ instead of nominal.

    But regardless, it's clearly telling us we're either about to have a global war or an oil embargo, and that's good to know.
  3. Hi R.C,

    I thought about that. But I think the nominal is more interesting b/c that's where the patterned history is significant. It's the nominal changes that affect people. I have the real $ money version in xl, and the serial correlation just isn't the same.

    For example, look at the trendlines in the chart (gold colored lines). The last secular bull trend line hit about 5 times including perfectly stopping the 1987 crash and the panic following 9/11. In real dollars, that dynamic doesn't show up. So I think recurring patterns of consolidation and resolution probably don't either.

    Hence, the whole point of showing what sort of "market situation" we're in now from a long long term point of view is more visible in the nominal pattern.

    But you're right in noting that its a very different picture when you factor out the "money illusion".
  4. vitajex


    Very interesting post and chart. Thanks!
  5. So what will underpin the next secular bull.

    flying cars? Free energy? Invasion by benevolent aliens? Deportation of all neocons?

    Jesus arriving in 2012?
  6. The same thing that was responsible for the similar past events: CHEAP MONEY.
  7. Some of these correlations work even better when using NDX as your present fractal vs. historical Dow. Particularly the 1920's-1930's movement vs NDX 1990's-now.
  8. Better cheap than free, as some have said in a different context...

  9. I take it, from your clear and entertaining sarcasm, that you feel the longer term picture is now so concretely bleak that a true period of organic and healthy expansion, even one that begins years from now, is difficult to imagine.

    I would only say that I'm sure this is another bullet point that could be added to the list in the opening post of this thread that pointed out similarities between the current state of affairs and those of 1938 and 1975.

    Of course we don't know what it is now. Hence the uncertain and tumultuous market behavior.

    But, if I had to venture a not-unreasonable guess, it would have something to do with the fact that "good ideas" are now approximately infinitely more potent than they were just 25 years ago in that, no matter where they occur, or when, they are suddenly available to billions of other people for collaboration and integration into their own good ideas, methods, and practices instantly due to the productive overhang of the last secular bull: namely: a global fiber optic information infrastructure. This has got to have some major second- and third-order implications that are yet to be understood or, indeed, fathomable.

    But that's beside the point. Everytime we focus on what we can foresee, we, by definition, leave out what we can't. It seems to be the case that, in times such as these, the problem is that certain themes are so visible, so forceful on the intellect, so easy to articulate, that it's almost impossible to see anything else. And, every time a new age of growth develops, it is based on a reorganization of ideas and capital that could not have been foreseen from the fog-of-war of the preceding consolidation phase.

    Hence, the abstract principle is that we will probably find a way to work out the seemingly insurmountable problems and get on with improving our lot. The point of the chart is that we seem to go through periods when we doubt that this is plausible. And that that doubt seems to have a relatively identifiable structure when seen from a bird's eye view.

  10. I agree completely... I have also been following this correlation. It seems to be a kind of record of the anatomy of a mania and its aftermath.

    Chart attached.

    Note that this rally is remarkable, but tracking perfectly with even this extended stage. I would also say that the dow was the "retail public's" market in the 1930's. The Nas100 is the public's index today. AAPL, GOOG, RIMM, AMZN, etc... So the moves are isomorphic with the dow of the 30's because that is where the retail public's emotional investment has been. Just my theory anyways.
    #10     Sep 15, 2009