Wednesday, March 25, 2009 12:57:50 AM
** CHARTING BUBBLES: DOW 2009, NASDAQ 2001, NIKKEI 1990, CHINA 2007.
How do bubbles unwind? How does DOW compare to some of the largest stock market bubbles in history? Is the unwinding process similar, and how far along are we now? What's next?
I've put the DOW up against the biggest bubbles I could find charts for, namely NASDAQ 2001, NIKKEI 1990 and CHINA 2007 (S&P500 will look same as the DOW)...I've started them all at the last time they were above MA20, and then fell off a cliff...the swings after are simply the min and max bounce points...
The comparisons are striking...and based on past history, we could take the following paths...
1. Best case scenario - Nikkei 1990 - yes, this is the best short-term case scenario. The 2nd wave down put in a short term bottom that lasted over a year. Under this scenario, DOW would retest 6800 shortly, before a nice run to 8600...and then bouncing around 6000-8000 range for a year...the bad news is that Nikkei ultimately went MUCH lower in subsequent years.
2. 2nd best scenario - NASDAQ 2001 - its 2nd wave was much more violent than ours now - it went 44% down then 44% up...however, it went on to make a new low (this scenario puts DOW low at 5500). It also never recovered.
3. Worst case scenario - CHINA 2007 - the most violent unwinding of the group. The bear rallies were big but short, and it made 2 more lows after this point (putting DOW low around 4500 and ultimately 4200, before recovering)...
This is a sober reminder, that as bad as we think this crash is, traders have been through much worse in past bubbles...
In fact, the Russian stock 2008 and Oil 2008 bubbles had much worse outcomes, but I didn't include them because I felt they were not big enough, and not representative enough of the giant markets like the DOW, or S&P 500.
How do bubbles unwind? How does DOW compare to some of the largest stock market bubbles in history? Is the unwinding process similar, and how far along are we now? What's next?
I've put the DOW up against the biggest bubbles I could find charts for, namely NASDAQ 2001, NIKKEI 1990 and CHINA 2007 (S&P500 will look same as the DOW)...I've started them all at the last time they were above MA20, and then fell off a cliff...the swings after are simply the min and max bounce points...
The comparisons are striking...and based on past history, we could take the following paths...
1. Best case scenario - Nikkei 1990 - yes, this is the best short-term case scenario. The 2nd wave down put in a short term bottom that lasted over a year. Under this scenario, DOW would retest 6800 shortly, before a nice run to 8600...and then bouncing around 6000-8000 range for a year...the bad news is that Nikkei ultimately went MUCH lower in subsequent years.
2. 2nd best scenario - NASDAQ 2001 - its 2nd wave was much more violent than ours now - it went 44% down then 44% up...however, it went on to make a new low (this scenario puts DOW low at 5500). It also never recovered.
3. Worst case scenario - CHINA 2007 - the most violent unwinding of the group. The bear rallies were big but short, and it made 2 more lows after this point (putting DOW low around 4500 and ultimately 4200, before recovering)...
This is a sober reminder, that as bad as we think this crash is, traders have been through much worse in past bubbles...
In fact, the Russian stock 2008 and Oil 2008 bubbles had much worse outcomes, but I didn't include them because I felt they were not big enough, and not representative enough of the giant markets like the DOW, or S&P 500.
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