If You're Bullish: Time for a 70's Party

Many traders have been following the 1974 analogy to the current market. The Dow Industrials have traded in a remarkably similar pattern to the Dow in the 1973 - 1974 time period.

According to the analogy, the market is now due for a major advance of 50% - 70%. In the chart below, the current Dow Jones Industrial Average is pictured in blue, while the 1973 - 1974 Dow is a black line.

Source: Bloomberg

The following chart is a closeup of the current market versus the market in 1974. The comparison basically shows that the market should not make a new low. In fact, it should begin a rather strong advance within the next several days, otherwise the overlay will disengage.

Source: Bloomberg

Also see: If You're Bearish: Time Has Run Out for a Rally

Comments

[CloroxCowboy:]

I think it's too easy to "see" similarities in charts for this argument to be very convincing. It's like looking at a cloud and "seeing" a puppy...

I do use a similar method for trading closely related stocks (ie pairs trade), but comparing the same index across two arbitrarily chosen time periods is completely different, and IMO borders on pseudo-statistics.

Feb 19 01:43 PM

[Steve in TN:]

I agree with CloroxCowboy.
Every market cycle is different; similar to ocean waves coming in...not two alike.

Feb 19 01:49 PM

[Greg B.:]

I hate these kind of things. I have never understood why some folks will play with charts hoping that the charts alone will lead them to some reasonable conclusion rather than looking at market fundamentals and investor sentiment (the psychological aspect being as important as the financial data streaming in).

It's too much like trying to forsee the future by reading tea leaves, reading the bumps on somebody's head or studying astrological aspects. In short, you might as well take investmen advice from an astrologer or phrenologist.

Feb 19 02:21 PM

[DaveW:]

There is an important difference between the two 'bottoms' you're comparing. The '73-'74 bottom made a series of higher highs and higher lows (bullish). However, our current 'bottom' formed a symmetrical triangle (shout out to Chuck Young of Rebel Traders), which usually resolves to the trend immediately preceeding it. In this case, the preceeding trend was descending. Sorry, not comparable bottoms, but contrasting bottoms.

Feb 19 02:36 PM

[CloroxCowboy:]

I agree with those comments. Check out the author's related post and graph as they are a better use of technical analysis. The blue line "All Out Investment Sell Signal" at least serves as a reflection of market sentiment which Gred alluded to.

Also to be fair to the author I think there is a time and place for bumping two charts together and measuring the correlation, co-integration, etc...I just don't think this is a sound example of that approach.

Feb 19 02:37 PM

[PROXIMO:]

The composition and weighting of the Dow in the 70's is not REMOTELY like today's composition. Further, you could chart the patterns of rats running through the dump and it would be as predictive as those overlapped DOW charts in gauging future equity levels.

Feb 19 03:26 PM

[takemehome:]

in 1974 everyone didn't own a Mc Mansions and unlimited credit.
It really is different this time. And back then everything was still American made.
the NWO ,NFTA and world trade has destroyed our economy forever
think about capitalist while listening to count down to extinction by megadeth.
Why is Bill Gates investing in a bomb shelter called the doomsday seed bank ?
Sounds like Moonraker to me.

Feb 19 07:15 PM

[Moon Kil Woong:]

What does the fuel embargo ultra high inflation 70's have to do with the commodities glut ultra low inflation economy today? Chartism is one thing, comparing opposite situations without regards to economic factors is a bit too absurd.

Feb 20 03:05 AM