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Wednesday, November 20, 2013

Quarterly DJ30 chart

I got a request to show the quarterly chart so here it goes.

Connecting the quarterly closes with trend lines shows an expanding volatility pattern.  We are also at the upper trend line right here.  This could be rather significant resistance.  The last bear market ended at the 100 SMA.  Most people are of the opinion that was a generational low.  I don't think that is the case, but we will see.  Lets look at the last secular bear market in the 70s.

The 73-74 time period shows a bit of an expanding pattern.  However, the bulk of the price action fits into a nice horizontal channel.  The 74 bear market broke below the 100 SMA.  We have not had that yet.  The DJ30 did not make a new high in the bull market off that low.  It also went into a quiet period in the late 70s.  It was in 79 when the famous magazine cover proclaiming the death of equities as an investment.  At the time people actually believed that.  The buy and hold crowd was washed out.  Does that sound like today to you?  Bill Gross was highly ridiculed for his piece on the death of the cult of equities.  Everybody, and I mean everybody was out proclaiming that as a contrarian sign.  How is something a contrarian sign if nobody believes it?  That told me we still have a long ways to go in this secular bear market.

This secular bear market price pattern is very different then the last one.  We are also at a logical place for a bull market top at the upper trend line.  It would not surprise me a bit to see that lower trend line hit in the next bear market.  The buy and hold crowd will be swearing off stocks forever.  Stocks will eventually get cheap.  I mean really cheap.

There has been a flood of money into the market since the indexes broke out to new highs.  That is a lot of people that chased the market and bought in at high levels.  Somehow Wall Street suckered people in again.  I guess we will see how it works out for them.  During the next bear market I expect a lot of people that rode out the last two bears will sell out not wanting to go through that again.  Time will tell.


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