I would like to hear from our readers on what they think about this chart. Is it meaningful? Can we learn from it? I wish to start a dialogue, not an argument. Feel free to comment. The chart is from Chart of the Day.
What Does This Mean?9 comments to What Does This Mean? |
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i think the more meaningful comparison to now would be the 1974 bottom.
i do not acknowledge the Dow as an index because it’s price-weighted and obviously only holds 30 stocks. and nasdapple is also losing a bit of its relevance. just my opinion, i understand that both are widely used and accepted.
rough numbers: the s&p 500 topped out at 120 in jan 73, fell 48% to bottom at the end of sept 74 (18 months), then rose 71% by sept 76 (24 months). then it gyrated with much lower peaks and troughs, but remained flattish for 5+ years, until big political / Fed changes occurred.
fast forward to oct 07, the s&p peaked around 1565, fell 57% to intra-day low of 666 in mar 09 (17 months), then peaked again in may 11 at 1363 (26 months). since then, same as post the 1974 bottom, peaks and troughs along the way, but to date we’re in the same vicinity as the peak.
i have no idea if the next few years follows the same path as the late 1970s, but if i had to guess i’d say yes … until our fiscal/monetary policy maladies implode on themselves. at that point, who knows.
i should add that the may 11 rally represented a 104% increase. down further than in 1974, and thus up further.
also, the other thing that may be interesting is that we sit about 13% below that 1565 top in 2007, which is the same percentage as the sept 76 recovery level relative to the 1974 bottom.
i’m usually not into this kind of stuff but this seems like it could mean something.
This kind of charts keeps us on our toes. I kind of feel that today the markets have nothing to do with the real economy but are simply the result of financial repression by the FED. Yes, one could even say, the FED IS the market. So it is extremely hard to know which way things will turn out in the medium term.
i think its statistically random in this case. i agree with linus that rallies going forward will have much more to do with central bank manipulation of institutional banks, the dollar, and QE. the pull backs that were prevented in the last 4 months have been rather obvious (the benny bounce). another correlation is usually presidential opinion polls and election years.
statistically the market is in rally mode more than half the time: taking the stairs up is much slower and longer than the elevator down. so is this chart better than tossing a coin? that coin lands 2 of 3 times in rally mode already. can you beat that?
i agree with dd that using the dow and the nasdaq (nasdaapl) together in the same chart is a mistake (oranges to aapls so to speak). better to use one index.
i do believe there are cycles to human behavior and how that affects markets. one of the strategists i follow creates cycles himself from proprietary data and called march 14-28 as the turn date. since he called every turn date in 2011 but one, i am convinced if you study the right things that it provides great probabilities. its a question of what to study, isnt it? what do you study? (taht same strategist is calling a peak in the war cycle right now).
is the chart meaningful? in this particular case, i say no. can we learn from it? yes. we can learn what is statistically significant and what is just noise.
I am sorry, but I find this chart rather useless…
Hans, I agree. I get these charts all the time and wonder if they really tell us anything. At best they are a mere historical representation of what occurred. But do they give us any predictive power? Each of those markets represented different economic circumstances, so why would they have any value in telling us what will happen in some not so distant future?
In other words, this gets back to the Austrian concept of how we know what we know. One could say that these are random data organized in a way the creator of the chart wishes, and so what.
I have serious doubts about the value technical analysis. To the extent that it may “work” from time to time could be nothing more than self-fulfilling prophesy. That is, when market traders see something in the charts that they believe presages something, they act accordingly and the event comes about.
I think, as most Austrians do, that real understanding can only come first from theory (a priori analysis), but empirical “proofs” can be tricky things. Austrians don’t disregard data analysis, but they do have doubts about the value of such proofs. This is what Hayek called “scientism”, the attempt to reach scientific truths through data analysis, something economists have long tried in order to turn economics into something like a physical science. Hayek and Mises pointed out that unlike atoms, it’s hard to pin down what human will do next (free will and all that).
I do believe that modern data collection and analysis have come a long way since the early debates between the theoreticians and the scientist of economics. But in order to make sense of any data, you must first prove it through a priori analysis.
Any thoughts?
I would agree that THIS sort of charting is “scientism”. But can it be denied that using standard technical analysis tools, for example noting that a stock has been tracing out a bottom over several months, or that it has not broken through a certain level, is extremely useful/relevant?
As Marc Faber says, “If you see a commodity that has been building a base for 7 years, buy that commodity.”
doug,
it cannot be denied. and many of the technical tools work on all time frames.
Doug, I don’t know and that’s why such historical data is difficult to follow. Could you say that is a repeatable phenomenon over time? Or is it “repeatable” because analysts believe it (until they don’t}?