Is the U.S. Market Forming a Long-Term Double Top?

A look at a long-term price chart for the US stock market might lead to the question: “Is the market forming a long-term double top?”

Consider the following 38-year price chart for the MSCI USA standard core index (proxy (VTI)).

On the other hand a log scale chart is less concerning.

Price Scaling: A logarithmic scale measures price movements in percentage terms, whereas a typical scale (an arithmetic scale) measures in price unit (Dollar) changes. Over the short-term and over smaller changes, arithmetic charts are OK, but over longer periods with large price changes, percentage change (log scale) charts may be better visual aids.

Even though the log scale chart is more reassuring, the failure of the chart to break prior highs, in conjunction with so many other historic events (oil prices, food prices due to ethanol, war, terrorism, credit meltdown, house price declines, Medicare underfunding, prospective tax hikes, declining Dollar, and shifting global economic power, for example), we think the double top possibility deserves continued observation.

Comments

[curious cat]

they say that pattern recognition is the hallmark of intelligence, but not all patterns are significant. one should not give too much meaning to the pattern of a dog in a particular cloud, but it might be helpful to recognize a cloud formation as indicative of a coming storm. looking at the night sky, you can see the big dipper or orion's belt, but someone with more powerful tools might stumble on the origin of the cosmos. the question, really, is whether there is meaning behind any stock market chart, other than the meaning we give it.

focus on the fundamentals that are behind the chart. remember what shakespeare said: our fate lies not in our stars, but in our hands. if suddenly the fed decides to inject massive amounts of liquidity into the market, the next turn in the chart can be surprisingly different than you might expect.

[ZardozZ]

This is why you shouldn't just be in the U.S. Market... :)