100 Years of the Dow

(Updated 10/31/2009)

1) Prices will always return to the norm. Extremes occurred in 1929, 1932, 1942, 2000 and 2007. The green trend lines are 250% above and below the regression line. The regression line is currently about 6,500.

2) Strong multi-year bull markets are characterized by declines that are short in time.

3) Multi-year corrective bearish patterns are characterized by advances and declines that last for years. H.S. Dent refers to these secular “non-Bull markets” as “adverse Geopolitical Cycles”.

4) The new high of 2007 hit resistance at the 100-year trend line.

5) Prices have fallen through the up trending channel that started in 1982 the beginning of the bull market.

6) The indicator at the top is from Pete Gersbacher and it shows the four-year cycle bottoms. It is simply the difference of the price vs. the 48-month simple moving average shifted left 24 months. Tops and bottoms occur around the +15% and –15% levels.

7) The indicator bottomed around –15% during the Bull market periods. The indicator moved much lower during the non-Bull market periods. The indicator hit -21.6% in September 2002, which was sign that the Bull market that started in 1982 had ended.

8) The February value was –37.1%. The last time it was this low was the 1974 bottom when it fell to -28.7%.

9) The current value of the indicator is -6.4% with the Dow at 9,712.73. The indicator rebounded from extreme levels to move above the –15% level in 1905, 1908, 1915, 1933, 1938, and 1975 but the secular bear market continued.

10) The Dow 100-year regression line is about 6,500 and the index hit an intra day low of 6,469.95 in March. The RED dashed lines assume that prices will repeat the Diamond pattern of the 1970’s but the low level of the indicator in February suggests a pattern more like 1928-32 and a final bottom around 3,000.

11) The average adverse Geopolitical Cycle is 16.4 years. The current one started in 2000 so prices will at best go sideways for six to eight more years.