Sunday, August 12, 2012

History of Market Cycles....

Top chart is a quarterly chart of the Dow Jones Industrial Average dating back from the 1929 stock market crash to the eventual breakout in 1954. The bottom chart is a monthly chart of the Q's or Nasdaq 100 stock market index etf from the great tech bubble of 2000 to the present.

As you know I'm a big believer of market cycles and patterns, my theories and technical analysis is all based on past performance of supply and demand patterns that make the best tools for judging imbalances and preparing for what is to come in the near future before it actually plays itself out. Though not perfect (no methodoligy regarding the stock market is or ever will be) and not easy to pick up and see without a lot of screen time.

Now looking at these charts I've pointed out only a few of the glaring similarities between the times. There are many others that you have to really have a trained eye to see. But for simplicity I've only pointed out the most important ones.

First off, notice the similarities in how far the retracment's in both major crashes produced. In the case of the 1929 crash a retracment of 89% proceeded in a time span of approximately 2 and a half years. Compare it to the great technology bubble which when busted produced a very similar 84% decline in prices which also took about 2 and a half years to complete.

Interesting huh? But that's not where the similarities end. After the 1929 crash low completed in 1932. An approximate 32% retracement rally ensued spanning 4.5 years. Let's match that with the present. We had a low form in late 2002 after the tech bubble, and once again in line with the past we had approximately a 32% retracement in prices during a short term bull market that spanned roughly five years until late 2007.

Then after that I think we all now what happened next, the financial system was in serious danger and the Dow and S+P 500 made new lows. However the Q's 2002 low remained in tact, we double bottomed in 2009 and have been moving higher since.

Now we are trading above the 2007 high in the Q's, right in line with the chart above dating back 70 years ago.

The breakout eventually occured in November 1954 some 22 years later. Which would give us a target of aproximately the year 2024-2025 to expect a breakout to all time highs in the Nasdaq 100 index, of course with bumps along the way.