Tuesday Sept 25 2012
I now have daily weekly and monthly data on the DJIA going all the way back to its creation. We featured charts of various periods this past weekend to show the 18 year cycles.
I hope to improve on these graphics but...here is a look at the Slow Melt Down from 1973-74. The Dow begins at 1,000+ and then slowly loses 50% declining to 577 by December 1974.
Dow Jones Industrial 1973-74 Weekly
A crash is generally acknowledged to be a sudden drop of 20%. You will not find such an occurrence in the 1973-74 experience. We cannot know the exact nature of the future. But after the wild drop os 2008, this slow melt down would be a perfect way to lull investors into overstaying their welcome.
This past weekend we pointed out that markets exist in fractals. There are giant 18 year fractals, portions of the previous bull market that start and end at the same points. But within those 18 year periods of stagnation are opportunities to profit from huge swings in the market. Now, after examining this decline from 1973-74, let's step back and look at the bigger picture.
DJIA Monthly 1973-1976
A short position from 1973 to December 1974 paid off very well. The tough part was then realizing the bottom and going long. Note the bump in January 1973, that was a fake out and clearly NOT the bottom. But within a couple of years the Dow had regained its former luster but left many behind who sold out on the way down searing never to go near the stock market again. Trust me on this, I was there.
A bear market exists to eliminate the excesses of the previous bull market.
It also eliminated the buy and hold investors who believed this was easy.
Not to mention that lengthy list of brokerages I posted this weekend who also thought this is easy.
RIP Lehman, Bear Stearns, IMF Global, Peregrine, and Zombie Banks like CITI.
While we are waiting for the markets to get going again thought readers might enjoy this short history lesson. We should be focusing on entries anticipating the next top and how to profit amid what is certain to be the ruin of the next two years for most that are unaware of history.
Major reversals in '00, '07, and '11 were marked by RSI divergence in the weekly chart. There is not one to be found yet for the current time period.
The caveat is that the '00 divergence persisted for 5 years before prices finally reversed. The '07 divergence lasted 10 months and the '11 divergence only 3 months. It is possible that the next one will not show up in the weekly chart without a new high versus '07.
Posted by: zenizen | September 25, 2012 at 07:55 PM