History Indicates a Bottom

From a pure technical perspective, the depth of this market decline has mirrored past declines. In terms of duration, the decline is about half as long as the longest market contraction that began in 2000 as noted in the below chart.

(Click charts to enlarge.)

Source: T. Rowe Price (pdf)

During the depression years, the worst back to back yearly contractions occurred in 1930 and 1931.

Comments

[ROLEX18:]

History is history, now is now, the main question investors must ask themselves if Mr.Market will deliver them the same average returns as in last 25 years till 2008, if the answer is YES, then you are free to buy and hold, if the answer is no, then your stocks will bottom (not all of it, some will go bankrupt or be taken over diluting your ownership) when 25 years from 2008 will deliver the same returns as in previous 25 only to the downside.

Feb 11 12:18 PM

[DC Housing ...:]

Enough already. How many times do bottom callers need to be wrong before they stop?

Feb 11 12:23 PM

[Dave Wrixon:]

From a purely technical standpoint, this is the only one of these depressions where we have no idea where the bottom is. My guess in the early part of last year was that it would be around 6000. I am beginning to think that was probably optimistic.

Many now seem to think that it could in many respects be worse than 1930s.
As depressions are caused by a contraction of money supply, usually due to loss of investor confidence, and because never in the course of history has credit previously been so freely available, that could possibly be true. The counter argument is of course is that we are much more adept at managing such crisis. That hypothesis, however, remains to be proven.

Feb 11 12:34 PM

[Marcap:]

I agree. Unfortunately it is those with mentalities like the author who have contributed so much towards placing us in the very dismal situation that we are now in. Too bad such people have not yet come to realize that more often than not, while charts and graphs play a very useful part in providing us with a good picture of the past, they are not in a way, shape or form good indicators of future events.

On Feb 11 12:23 PM DC Housing Bear wrote:

> Enough already. How many times do bottom callers need to be wrong
> before they stop?

Feb 11 12:43 PM

[Darwinist:]

Well ! A sage has said the following and I want it to be widely circulated to reflect the true picture of the market:
If you are looking for the stock market bottom to buy there's special offer : Buy one and you'll get next one free.

Feb 11 12:46 PM

[Nick Waddell:]

It's amazing how smug and arrogant the comments are on here when any article has a slightly positive tint to it.

Feb 11 01:13 PM

[mr freddo:]

History has never been a great predictor of future market conditions unless you can get a vast majority of investors to believe it is true. Then history is relevant.

It's like arguing how low the tide will go based on history. You would have been correct except that this time there is a great Tsunami headed toward shore that has sucked all of the water out of the bay.

The financial tsunami is the complex structure of interrelated transactions known as derivatives. They are so complex that nobody understands them, not even the CEO's who hold them.

The great unwinding still has a long way to go. I am looking to 5000 to 6000 by summer which isn't so bad if the banks are still open and our credit cards still work.

Feb 11 01:18 PM

[Larry House:]

So? No offense to the author, but if you don't have anything better to do, take up a hobby! This does not add anything meaningful to the topic.

Feb 11 01:26 PM

[Crank Monkey:]

But it's different this time.

Feb 11 01:48 PM

[Jim Hawthorne:]

Which history? Which bottom? Which 'pure technical perspective'?

As my fellow 60-something Larry points out, the topic of market bottoms deserves more respect and analysis than your coin-toss approach.

Brian Shannon at Alpha Trends has some interesting viewpoints on this topic, and is less grumpy than I.
www.alphatrends.blogsp.../

Feb 11 02:05 PM

[David I. Te...:]

I actually did not call a bottom as the SeekingAlpha title is slightly different from the one I posted on my blog. From a pure technical perspective I asked the rhetorical question if this time in history is similar to those in the past as many seem to think this is similar to the Great Depression.

Feb 11 03:14 PM

[Child Psych...:]

Thanks for the graph but where's the article? Yes, we have had price declines similar to those in the past but so what? That being said, the bearishness around here is getting very complacent, and the article is most useful in terms of the responses that it provokes. The latter are the tea leaves.

Feb 11 03:29 PM

[Marcap:]

My eyesight may not be what it use to be, but I fail to see 'any' question in your article, rhetorical, implied or otherwise. Perhaps someone else can see that which I could not. Or are we all expected to see that which is simply not there?

On Feb 11 03:14 PM David I. Templeton wrote:

> I actually did not call a bottom as the SeekingAlpha title is slightly
> different from the one I posted on my blog. From a pure technical
> perspective I asked the rhetorical question if this time in history
> is similar to those in the past as many seem to think this is similar
> to the Great Depression.

Feb 11 04:18 PM

[David I. Te...:]

See title in original article on my site.


On Feb 11 04:18 PM Marcap wrote:

> My eyesight may not be what it use to be, but I fail to see 'any'
> question in your article, rhetorical, implied or otherwise. Perhaps
> someone else can see that which I could not. Or are we all expected
> to see that which is simply not there?
>
> On Feb 11 03:14 PM David I. Templeton wrote:

Feb 11 05:18 PM

[Schweizer:]

With 2009 S&P earnings estimated at $41 (and falling) and Bear Market lows almost always being made at 8-10 PE, we should see sub $500, so, your view has very little credibility. We are at a PE of 20 now pal.

Feb 11 05:44 PM

[PROXIMO:]

You could graph the pattern of cockroaches scurrying across the kitchen floor, and it would have at least as much predictive value as the chart comparisons of previous declines relative to today's markets.

Feb 11 06:03 PM

[Bruce Pile:]

Shouldn't the '30s decline go to the '32 bottom instead of to '37 as shown in the graph? 1937 was actually the top of a huge 5 year bull market from 1932 to 1937. If you draw the '30s decline to that bottom, it's more like an 85% decline. If you draw it that way, it parallels our current decline more closely, which would call the bottom much lower.

Feb 11 08:39 PM

[The AntiCramer:]

No bottom until analysts finally get their estimates in line with reality. I don't care how similar the charts are. Last I checked most corporations don't generate profits based on the S&P 500 index. I'll switch sides when P/E ratios hit single digits.

Feb 11 09:19 PM

[I need a ba...:]

There is no future in history.

Feb 12 12:13 AM

[Still Renting:]

When Reagan was elected, my brother pointed out that every president that won a presidential election on a year ending in zero (e.g. 1980) died in office.

He didn't.


One should err on the side of caution when using previous "similar on the surface" events to predict the outcome of current events. The devil is in the details, and the subtle fundamental differences.

Past performance does not guarantee future results.

Feb 12 09:39 AM