Bear market ahead and 14 more years of range trading? The next weeks will show!

Discussion in 'Trading' started by Riskmanager, Nov 19, 2005.

  1. Good afternoon, Gentlemen!

    Since I finished reading a very intriguing book that deals with the markets from a very long term point of view, I did some research to find clues about how the markets may or may not behave in the not too distant future.

    Here are my results.

    Throughout the 20th century, the markets could be parted into several distinct phases.

    1906 - 1925 Sideways market
    1925 - 1933 New economy and burst of the bubble
    1933 - 1966 post-crash consolidation and cold war economic expansion
    1964 - 1983 Sideways market
    1983 - 2000 Newer new economy and burst of the bubble
    2000 - ? Sideways market

    So, for two times during the 20th century, the markets (as represented by the Dow Jones Industrial Average) traded in ranges for nearly 19 years. Several similarities between these two phases and the current status quo are striking.

    Here's a chart of the first phase:


    (Click here if image isn't displayed properly)

    During the early 20th century, the Dow traded between the 100 and 75 point levels. These were the focal points the bulls and bears gathered at.

    The second sideways market took place between ~1964 and 1983:


    (Click here if image isn't displayed properly)

    Again, this market lasted for about 19 years and again, it's range was defined by multiples of the previous sideways market. The focal points were the 1000 and the 750 point levels of the dow.

    The big question now is; are wie in the midst of a new sideways market that will last for about 14 more years?
    Let's have a look at the chart:


    (Click here if image isn't displayed properly)

    We had a huge run up during the heights of the bubble, and a bearish diamond pattern formed. I remember John Murphy pointing it's formation out back then as well, as did plenty other technical anlysts. If you think this is stupid, then ask yourself whether you came to the same conclusion back then, i.e. to short stocks in the long run.

    Currently, we are approaching the 11000 resistance again, which was strong during the last test. If the Dow fails again to break through it and a bear market emerges e.g. due to a housing crash or a slowing chinese economy, chances are high that we will stay in the range for the next years. And if history repeats itself, this could very well last for 14 more years.

  2. empee


    very nice post, maybe there is somthing to 75-100 multiples, so I guess when we breakout in 50 years we go to 75,000-10,000 range :)
  3. Cheese


    Bear market ahead and 14 more years of range trading?
    More bear scaremongering and 14 more years ahead of similar horsesh*t.
    Just play the day and make hay.
  4. Pabst


    Nice job Riskmanager. Of course we all know there's infinite ways of getting from A-B, but I see some future scenarios derived from a historical basis as well.

    For one the modern market has been the tale of multiple indices. "Classical" analysis has of course focused on the Dow Jones Industrials with Dow theory incorporating the antiquated Transportation and Utility averages. Now days the "benchmark" for the majority of mutual funds is the S&P 500 and the popularity in the last couple of decades of narrower indices like those developed by the NASDAQ and Russell have fragmented performance standards into a myriad of ETF's, sub- industry groups and derivatives. All of this begs the question of macro technicians, Is there a total market? I'd say each index is it's own animal and for those who don't agree, I'd ask how a long Tech short Blue Chip spread fared from spring of 2000 through spring 2001.

    In short, I also see an uncanny resemblance as you do Riskmanager between present market action and the mid 1960's to 1983 DIA. The 2000-2003 correction in the Dow was not an "epic" event as was the 1929 crash. Throughout the 1970's we had several 30-40% pullbacks much like we saw in the Dow earlier this decade.

    HOWEVER the NASDAQ is a completely different story. It's parallels to the 1920's bull and the 1929-1932 "crash" are striking both in terms of actual percentage moves and time duration of cycles. If the NASDAQ were to continue running to form vs. the 1932-1937 DIA we could see the either the Comp or the 100's rally to around 2500. Obviously there's been a HUGE divergence since 3/2000 between the NazComp and the Naz100 so it's difficult to even figure out what's the real tech benchmark?

    In summary, my best opinion is that NDX will vastly outperform DIA and to a lesser degree SPX over the next year. Perhaps one should trade DIA like we're in stuck in the seventies and trade NDX like we're in the mid 1930's.
  5. wow, i dont know where to start making fun of this ill just credit you for your contribution...well done :)

    next week tells us about the next 14...nice hardy chuckle before bed.
  6. Perseus


    my research suggests that we are stuck in the range 1-100000 in the S&P for the next 14 years. I see no opportunity for profits, sorry man.
  7. Either way, those charts represent a 25% ,or more, swing in the market. So in todays market we could go from 11,000 on the DJIA to 8,000 or so then back and repeat up to 4 times? I will take that range as a day trader for the next 50 years.
  8. Time to short Dow...
    Might be heading to 10,200 to 10,000
    with 3-4 Months
  9. bighog

    bighog Guest

    What happened to : Good afternoon: Ladies and gentlemen?

    Without Ladies where would we be? I mean why even get out of bed in the morning......:D
  10. Bob111


    #10     Nov 22, 2005