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Here's a chart that you don't want to miss

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March 04, 2009 – Comments (13)

I personally am not a big fan of technical analysis.  While I don't pretend to understand it, it all seems like a whole lot of mumbo jumbo to me.  Having said this The Big Picture featured an amazing chart courtesy of JPMorgan this afternoon.

Check this out.  The Dow Jones Industrial Average recently retraced to its 12-year low.  This has only happened two other times in its history.  One was on April 8, 1932 and the other was on December 6, 1974.  Does this mean that we are close to a bottom?  It's tough to say.  I'm more of a believer that every single period of time is a product of independent events and that it does not matter what has happened in the past.  I personally would be shocked if this was the absolute bottom for the major indices given what is going on with the economy right now, housing, jobs, and consumer spending are all in a freefall and the banks are a mess.

Still, this is one interesting chart.  In both of the previous times that a 12-year retracement has happened the economy continued to get worse, i.e. unemployment continued to rise and U.S. GDP continued to fall, after the ultimate bottom in the DJIA was reached.

I would not be surprised in the least if we put together some sort of nice, sustained rally in the near future here.  Heck, enough people are looking for one.  Still, I personally am going to treat any positive action as nothing more than a bear market rally.  I will continue my quest for yield and stick with the bonds that have been treating my portfolio well.

Deej

13 Comments – Post Your Own

#1) On March 04, 2009 at 6:08 PM, TMFDeej (99.41) wrote:

Here's a larger copy of the chart that I referenced that's easier to read:

Deej

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#2) On March 04, 2009 at 6:18 PM, TrailerParkJawa (< 20) wrote:

Hi Deej,

Nice chart. Aren't we told that stocks are forward looking and that is should be expected for them to recover 6 months to a year before we actually see much change in the economy at a personal level?

What I find interesting in the 2nd two periods on this chart is that within the 12 year period gains were given up twice. In the case of the latest we have the double double of dot com followed by the housing bubble.

 

- TPJ

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#3) On March 04, 2009 at 6:34 PM, IIcx (< 20) wrote:

Great post, it would be interesting to see the chart adjusted for inflation. 

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#4) On March 04, 2009 at 6:45 PM, Bupp (28.49) wrote:

Agreed that real values would be of more interest than nominal values.

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#5) On March 04, 2009 at 7:56 PM, abitare (39.45) wrote:

Here is a better chart:

http://dshort.com/charts/bears/four-bears-large.gif 

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#6) On March 04, 2009 at 8:25 PM, murugan2 (27.37) wrote:

Nice chart, just be careful, there is enough sideways and residual down action after the lows to chew most of us up and spit us out.

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#7) On March 04, 2009 at 8:31 PM, TideGoesOut (78.18) wrote:

scary, abitare. But I just can't see us hitting Great Depression levels.

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#8) On March 04, 2009 at 8:53 PM, rofgile (99.30) wrote:

Maybe for long-term investors, it might not be a bad time to buy some positions.

The risk level seems very high though right now.  Even some big companies that had been doing very well could possibly go bankrupt at this point.   

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#9) On March 04, 2009 at 11:14 PM, RainierMan (80.44) wrote:

I wasn't really sure what to make of that chart when I saw it elsewhere. I tend to combine the charts with what the majority of the macro-information tends to indicate and use them to provide perspective.

Shiller's  recent chart and data of p/e ratios during bear markets seemed pretty intriguing and tended to jive more with expectations generated from current macro-events (i.e., we're headed down significantly before it's all over).

 

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#10) On March 05, 2009 at 1:48 AM, dietvanillacoke (< 20) wrote:

That first dip looks like it could have been drawn as a 30 year low.  1979 here we come!

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#11) On March 05, 2009 at 3:31 AM, KamranatUCLA (29.11) wrote:

these charts have absolutly no creditablity...like Jim Cramer. Stocks will go up when we have these things:

1) Transparency: investors need to know what they are investing in. CEOs and owners have for decades fooled the investors with all sort of tricks: stock options, different classes of shares, insider trading...etc etc It never ends. This is when greed has negative effect.

2) Sustainability: We have to come with terms that we will be on this planet for thousand of years to come if not millions. We have to respect what we have and stop raveging our planet like there is no tomorrow. Once we burn the oil it's gone forever. Investors and consumers feelings are down because we don't see a bright spot. We are still heavily depending on oil, coal, and natural gas.

3) Leadership: We need a guy/girl to say: hey, it's ok to invest in solar panels even if the technology will be obsolete. If the person who invented the comodor 64 didn't invented it because he knew in 20 years there would be apple with gigabites of memory etc we would have never had the super computers we have today.

4) Savings: Savings should be rewarded. This is what I like about old countries like Iran. People save. They own their homes flat out, no taxes, no property taxes, everything is priced in when they buy a home and it belongs to them forever. Some property deeds in Iran go back for thousand of years. Government should encourage us to save and not waste. Saving is the best thing that could happen to the U.S. What a brilliant idea! forgo wasting in hopes of better future. If I was Obama I would say americans to put all their money in CDs and government would pay them certain interest rates. This way many of our problems would disapear. People would drive less, save gas, would buy less junk and so on. And instead we could focus on new technologies, wind turbines, solar, geo thermal and even Tide energy. We need better cars. Back in the 50s Chevy made a 100% plastic car(including engine!), much lighter, better fuel efficiency..combine that with electric and we could have safe, fast, efficient cars.

5) The grip that big oil, big steal, and big CEOs have on our lives, future have to be broken.

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#12) On March 05, 2009 at 4:58 AM, jester112358 (28.77) wrote:

Another unique problem of our times is the changing demographics and with it risk as seen by older, usually wealthier investors.  Will there be enough younger people to buy the equities, bonds, etc. held by the senior population (who control over 90% of the wealth).  I believe this has played a major role in Japans failure to recover.  Just too many sellers and never enough buying pressure.  We may very well be in the same boat.  Only an major cut in corporate tax rates could pull us out as that would help margins immensely.  Unfortunately, this is not going to happen.  I'm guessing stagnation at these levels for a very long time.

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#13) On March 05, 2009 at 1:54 PM, saunafool (98.79) wrote:

Kickstart,

scary, abitare. But I just can't see us hitting Great Depression levels.

Well, the conditions today are very similar to the Great Depression or the Japanese collapse of the 90's. The entire economy was driven by credit. We are now finding that it was credit that could not be repaid--just like the other two collapses. It is very likely going to be very bad for a much longer period of time. How long? I don't know, but my guess is at least 3 years of recession (that would end the recession at the end of 2010).

All I'm saying is that there is no way to know how bad it will be. 89% drop? Hard to believe, but it has happened before.

So, be careful out there.

sf

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