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business newsWhat the Dow Can Tell Us About Past and Present Markets, Part 2
A look at charts of the DJIA that reveal important patterns.
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I started this special series by closely examining data regarding Dow milestones and secular bear markets. I’ve included tables and brief notes from last week’s article for your convenience. After a quick review, I’ll share some charts that reveal an important pattern.
Inception: The Dow Jones Industrial Average opened at 40.94 on May 26, 1896.
(Sources: Data360; Wikipedia; Yahoo Finance; Bloomberg)
Inference
Not all milestones are equal. The Dow appears much more attracted to certain psychological levels (i.e. 100, 1,000, and 10,000). While it seems to race to these important levels, the Dow has a much more difficult time leaving them behind.
Why This Matters
The market’s propensity to linger at such levels creates an opportunity for those who can correctly identify when the index has, in fact, departed 10,000, or when it will.
Next, I examined bear-market lows for clues.
Bear Market Lows
Key Observations
In the first bear market, the low occurred almost three years in. It took another 10 years to leave the 100 level.
The low occurred later in the second bear market -- a full seven years in. Still, it took the Dow another eight years to leave behind the 1,000 level.
In March 2009, the Dow put in a low nine years into the present bear market.
A Starting PointThe bear market low provides a starting point. From there, the market must work its way back into shape before finally conquering key psychological levels and ultimately transitioning to a secular bull phase. That repair takes much time -- eight to 10 years from the low, history would suggest.
To the Charts
Starting with the bear market low, I’ve examined the charts of the two previous secular bear markets looking for similarities. But, first let me make a point about an obvious difference in the two charts. In the first, the Dow spent most of its time above 100; in the second, the Dow remained stuck below 1,000 for the entire bear market. Despite this important difference, the result was nearly the same: It took eight to 10 years after the low to finally leave behind the key psychological level.
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