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Amateur Investors Weekend Stock Market Analysis (9/22/12)

http://www.amateur-investor.net/Weekend_Market_Analysis_Sep_22_2012.htm

For those that like market history if the Dow ends up with a positive gain this year it will be the 4th year in a row. Since the Dow's inception in 1896 there has only been one other period of time where the Dow has lost 20% or more of its value in on a yearly basis which was then followed by positive gains 4 years in a row. This occurred in the early to mid 1930's.



Meanwhile looking at long term yearly chart of the Dow shows after the 4 yearly rally ended in early 1937 (points A to B) a 6 year consolidation period followed.



Next if we zoom in closer to that period of time after the Dow peaked in early 1937 this was then followed by a choppy 6 year consolidation period from 1937 through 1942. Also notice during this consolidation period that the Dow tested its 61.8% Retrace (calculated from the 1932 low to the early 1937 high) twice (points C) before putting in a bottom.



Finally keep in mind the market rarely goes straight up and down like we have seen the last 10 years so the odds would certainly favor some type of consolidation pattern lasting a number of years after the current rally ends. If the Dow were to trace out a pattern similar to that from the 1930's through the 1940's then the Dow would peak by early 2013 and would evolve into something like shown below.