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Saturday, September 19, 2009 11:06:18 PM
Amateur Investors Weekend Market Analysis (9/19/09)
http://www.amateur-investor.net/Weekend_Market_Analysis_Sep_19_09.htm
Since the March lows the Dow has gained 54%, Nasdaq (69%), Nasdaq 100 (66%) and S&P 500 (61%) in basically 6 months. Going back to 1900 this is the 4th largest gain for the Dow in 6 months or less after a drop of more than 25% has occurred prior to the huge gain. If you thought a 52% gain in 6 months is something to behold looked what happened in the early 1930's as the Dow gained 122% and 100% after seeing steep losses.
Although the rally from the March lows has been impressive some are now calling for the next great Bull Market to follow. However I would caution everyone that the current chart patterns of the Dow, Nasdaq 100 and S&P 500 resemble patterns of the past which didn't end up being bullish in the long run.
First off I will start with the Nasdaq 100 and compare it's chart to that of the Dow from the 1920's through the 1930's. Notice in the charts below the Nasdaq 100 made a huge parabolic move from the mid 1990's through early 2000 much like the Dow did from the early 1920's through 1929. This was then followed by an unthinkable sell off in which the Nasdaq 100 lost 83% of its value from 2000 through late 2002 much like the Dow did from late 1929 through the middle part of 1932 in which it lost 89% of its value. Then from late 2002 through late 2007 the Nasdaq 100 underwent a 5 year rally in which it gained 182% much like the Dow did from the middle part of 1932 through early 1937 in which it gained 382%. This was then followed by another sell off in the Nasdaq 100 from late 2007 through late 2008 in which it lost 54% much like occurred with the Dow from early 1937 through early 1938 in which it fell 50%. Meanwhile since the November 2008 low the Nasdaq 100 has rallied 70% much like the Dow did in 1938 in which it gained 59%.
Another thing to note is that back in 1938 the Dow stalled out right at its 61.8% Retrace (red line) calculated from the 1937 top to the late 1938 low. Furthermore notice the Nasdaq 100 is now approaching its 61.8% Retrace (red line) calculated from the late 2007 High top the late 2008 Low. Thus so far the two charts below are almost a carbon copy of each other. Finally the last thing to notice is what happened to the Dow after it peaked in late 1938. Notice the Dow then trended lower through early 1942 as it eventually retested the low made in early 1938 as it fell another 42%.
Next I'm going to take a look at the Dow. When you look at a longer term Monthly Chart of the Dow it looks rather similar to the chart of Goldman Sachs (GS) just a few years ago. As you can see below GS formed a Head and Shoulders Top pattern from the middle part of 2007 through the middle part of 2008 with a severely sloped downward Neckline. Furthermore notice the 2nd Shoulder peaked right at the 61.8% Retrace calculated from the peak of the 1st Shoulder to the low made in the Summer of 2007 (point A). Meanwhile GS eventually broke below its Neckline support area in the Summer of 2008 which was followed by a 63% drop until a bottom occurred in November of 2008.
Now if we look a longer term chart of the Dow notice it appears to be developing a similar Head and Shoulders Top pattern but on a much larger scale than GS. The early 2000 high was the 1st Shoulder while the late 2007 high was the Head. Meanwhile if you draw Retracement Levels from the peak of the 1st Shoulder to the late 2002 (point B) low notice the 61.8% Retrace is at 10000 which could act as the 2nd Shoulder. Also just like GS the Dow also is exhibiting a downward sloping Neckline although it isn't quite as sharp as GS had.
Finally I will look at the S&P 500 next as the chart below is a logarithmic chart with the upper panel adjusted for Inflation while the bottom panel isn't Inflation adjusted. When you compare the two charts you can see some big differences from the late 1960's through the early 1980's and beginning again in 2000. As you can see the Inflation Adjusted S&P 500 peaked in 1968 (point C) while the non Inflation Adjusted chart peaked in early 1973 (point D). Furthermore notice the Inflation Adjusted chart didn't bottom until 1982 (point E) while the non Inflation Adjusted S&P 500 bottomed in late 1974 (point F). In addition notice the Inflation Adjusted S&P 500 made a lower High in late 2007 as compared to early 2000 while the non Inflation Adjusted S&P 500 made a slightly higher High which looks like a bearish Double Top pattern.
Meanwhile notice the current Inflation Adjusted Chart looks very similar to that of the period from the late 1960's through the mid 1970's as both periods saw two substantial drops (points G to H) followed by one substantial rally (points H to G). Also notice there was another strong rally from late 1974 through the mid part of 1976 much like we are seeing now (points H to I). Meanwhile also notice after the Inflation Adjusted S&P 500 peaked in the latter part of 1976 it then resumed its downtrend before finally bottoming in late 1982 (points I to J) as it lost an additional 44% over the next 6 years. Although the recent rally from March low has been impressive it's magnitude so far is similar to that of the mid 1970's.
As you can see from the charts above the major averages are exhibiting different overall patterns from each other along with differing time periods. Although the rally from the March lows has been impressive there have been similar patterns in the past which have not turned out to be bullish in the long run.
Signup for a "Free 4 Week Trial Membership" or save up to 50% on a Premium Membership and you will have access to the following products.
1. "ETF Daily Buy and Short Signals" which can be used to trade the DIA's, QQQQ's and SPY's.
2. "401K/Thrift Savings Plan (TSP) Timing Service" which can be used to help improve your return in your 401k/TSP Account.
3. The "End of Month Strategy". This Strategy focuses on the typical End of Month markup by the Institutional Money.
4. "Stocks to Buy List" which can be used with either our Short Term Strategy or Long Term Strategy.
http://www.amateur-investor.net/Weekend_Market_Analysis_Sep_19_09.htm
Since the March lows the Dow has gained 54%, Nasdaq (69%), Nasdaq 100 (66%) and S&P 500 (61%) in basically 6 months. Going back to 1900 this is the 4th largest gain for the Dow in 6 months or less after a drop of more than 25% has occurred prior to the huge gain. If you thought a 52% gain in 6 months is something to behold looked what happened in the early 1930's as the Dow gained 122% and 100% after seeing steep losses.
Rank Time Previous Max Gain next
Period Drop 6 Months
1 1933 -39.0% 122.0%
2 1931-1932 -86.3% 100.5%
3 1974-1975 -43.0% 55.2%
4 2009 -54.4% 52.3%
5 1929-1930 -49.4% 52.1%
6 1937-1938 -50.0% 50.0%
7 1982-1983 -25.0% 47.4%
8 1907-1908 -48.5% 41.7%
9 1987-1988 -41.0% 31.0%
10 2002-2003 -38.7% 25.6%
Although the rally from the March lows has been impressive some are now calling for the next great Bull Market to follow. However I would caution everyone that the current chart patterns of the Dow, Nasdaq 100 and S&P 500 resemble patterns of the past which didn't end up being bullish in the long run.
First off I will start with the Nasdaq 100 and compare it's chart to that of the Dow from the 1920's through the 1930's. Notice in the charts below the Nasdaq 100 made a huge parabolic move from the mid 1990's through early 2000 much like the Dow did from the early 1920's through 1929. This was then followed by an unthinkable sell off in which the Nasdaq 100 lost 83% of its value from 2000 through late 2002 much like the Dow did from late 1929 through the middle part of 1932 in which it lost 89% of its value. Then from late 2002 through late 2007 the Nasdaq 100 underwent a 5 year rally in which it gained 182% much like the Dow did from the middle part of 1932 through early 1937 in which it gained 382%. This was then followed by another sell off in the Nasdaq 100 from late 2007 through late 2008 in which it lost 54% much like occurred with the Dow from early 1937 through early 1938 in which it fell 50%. Meanwhile since the November 2008 low the Nasdaq 100 has rallied 70% much like the Dow did in 1938 in which it gained 59%.
Another thing to note is that back in 1938 the Dow stalled out right at its 61.8% Retrace (red line) calculated from the 1937 top to the late 1938 low. Furthermore notice the Nasdaq 100 is now approaching its 61.8% Retrace (red line) calculated from the late 2007 High top the late 2008 Low. Thus so far the two charts below are almost a carbon copy of each other. Finally the last thing to notice is what happened to the Dow after it peaked in late 1938. Notice the Dow then trended lower through early 1942 as it eventually retested the low made in early 1938 as it fell another 42%.
Next I'm going to take a look at the Dow. When you look at a longer term Monthly Chart of the Dow it looks rather similar to the chart of Goldman Sachs (GS) just a few years ago. As you can see below GS formed a Head and Shoulders Top pattern from the middle part of 2007 through the middle part of 2008 with a severely sloped downward Neckline. Furthermore notice the 2nd Shoulder peaked right at the 61.8% Retrace calculated from the peak of the 1st Shoulder to the low made in the Summer of 2007 (point A). Meanwhile GS eventually broke below its Neckline support area in the Summer of 2008 which was followed by a 63% drop until a bottom occurred in November of 2008.
Now if we look a longer term chart of the Dow notice it appears to be developing a similar Head and Shoulders Top pattern but on a much larger scale than GS. The early 2000 high was the 1st Shoulder while the late 2007 high was the Head. Meanwhile if you draw Retracement Levels from the peak of the 1st Shoulder to the late 2002 (point B) low notice the 61.8% Retrace is at 10000 which could act as the 2nd Shoulder. Also just like GS the Dow also is exhibiting a downward sloping Neckline although it isn't quite as sharp as GS had.
Finally I will look at the S&P 500 next as the chart below is a logarithmic chart with the upper panel adjusted for Inflation while the bottom panel isn't Inflation adjusted. When you compare the two charts you can see some big differences from the late 1960's through the early 1980's and beginning again in 2000. As you can see the Inflation Adjusted S&P 500 peaked in 1968 (point C) while the non Inflation Adjusted chart peaked in early 1973 (point D). Furthermore notice the Inflation Adjusted chart didn't bottom until 1982 (point E) while the non Inflation Adjusted S&P 500 bottomed in late 1974 (point F). In addition notice the Inflation Adjusted S&P 500 made a lower High in late 2007 as compared to early 2000 while the non Inflation Adjusted S&P 500 made a slightly higher High which looks like a bearish Double Top pattern.
Meanwhile notice the current Inflation Adjusted Chart looks very similar to that of the period from the late 1960's through the mid 1970's as both periods saw two substantial drops (points G to H) followed by one substantial rally (points H to G). Also notice there was another strong rally from late 1974 through the mid part of 1976 much like we are seeing now (points H to I). Meanwhile also notice after the Inflation Adjusted S&P 500 peaked in the latter part of 1976 it then resumed its downtrend before finally bottoming in late 1982 (points I to J) as it lost an additional 44% over the next 6 years. Although the recent rally from March low has been impressive it's magnitude so far is similar to that of the mid 1970's.
As you can see from the charts above the major averages are exhibiting different overall patterns from each other along with differing time periods. Although the rally from the March lows has been impressive there have been similar patterns in the past which have not turned out to be bullish in the long run.
Signup for a "Free 4 Week Trial Membership" or save up to 50% on a Premium Membership and you will have access to the following products.
1. "ETF Daily Buy and Short Signals" which can be used to trade the DIA's, QQQQ's and SPY's.
2. "401K/Thrift Savings Plan (TSP) Timing Service" which can be used to help improve your return in your 401k/TSP Account.
3. The "End of Month Strategy". This Strategy focuses on the typical End of Month markup by the Institutional Money.
4. "Stocks to Buy List" which can be used with either our Short Term Strategy or Long Term Strategy.
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