Long Term Analysis of The Dow

Initially I wanted to retype what Conrad spoke about last Friday during the Trader gathering, but I did an analysis myself and found some rather surprising results. So I’ll be writing a report based on what I found instead.

As pattern traders, I will let the pattern on the charts speak for themselves; I have changed my candlesticks to lines so that we can see the pattern on the charts clearly.

Dow in the period leading up to The Great Crash of October 1929



Dow in the period leading up to the current Credit Crisis October 2007 (note the similiarity of the charts between the 2 time periods)



After the Great Crash of October 1929, the market lost 48%. Then the Dow proceeded to recover almost 50% after finding a bottom in November 1929.



Dow lost 54% from October 2007 to the March 2009 lows in the current Credit Crisis. As of Thursday 15th October 2009, we have recovered around 45% of the loss since the Credit Crisis began. (note the similiarity of the charts between the 2 time periods)



After the Great Crash of 1929 and the subsequent huge rally that caught millions of people including the father of Value Investing Benjamin Graham himself, the market went down another 90%. It practically went to hell.



Let me reiterate that economic cycles are not caused by any one individual or country. It is the movement and rotation of generations of different thinking and actions as a whole that causes these economic cycles. So there’s no way anyone country or countries can do anything to prevent them. We can only delay the inevitable but what will happen will still happen eventually. And due to the ‘preventive’ measures taken by governments, now we see that market downtrends are taking longer to play out.

Then I got itch fingers and drew a fibo for both charts and this is what I found.

Dow after 1929



Dow now.



That was exactly 80 years from today. For those who do not believe that the Dow will move to such a low level can take heart to know that in the writings of the Father of Value Investing Benjamin Graham, he also did not believe that the Dow could go down to such a low level of 42 in 1932. He almost got wiped out if not for the relatively large cash reserves that value investors always maintain in their portfolios. As for the siginifcance of this event being exactly 80 years from now, you can read the 4th Turning by Strauss and Howe.

I believe you can come to a conclusion for the report yourself.