The Case Against Investing in the Dow Industrials (For Now)

There appears to be 16 year Dow growth investing cycles followed by 16 years of volatility.  The 16 year period of volatility began in 1999, and on a historical basis would end in 2015.  The following Dow Jones Industrial Average charts illustrate this point. 

click to enlarge images

Period 1950 to 1966 (source Yahoo! Finance) – Growth Investing Cycle

Period 1966 to 1982 (Source Yahoo! Finance) – Volatile Cycle

Period 1982 to 1998 (Source Yahoo! Finance) – Growth Investing Cycle

Period 1999 to 2015 (Source Yahoo! Finance & The Hand) – Volatile Cycle

It is interesting that recessions have occurred in each of the 4 cycles presented above. 

To be honest, I do not really believe what the 1999 to 2015 chart is suggesting.  I am not a big fan of using historical data to project the future (data can be twisted to support almost any supposition).     

On the other hand, we have been traveling from one credit crisis to another since 1987, each seems bigger than the previous one.  The current one is so large it should take many years to work the effects through our financial system.  Maybe, we are in a Dow Jones Industrial’s volatility cycle which will take many more years to finish.

Disclosure: Author holds positions in GE and T - less than $20K each.

Comments

[lytle:]

Steven,

A very interesting article!

2008 Aug 04 11:33 AM

[lytle:]

Steven,

A very interesting article !

2008 Aug 04 11:34 AM

[AJ30:]

In his book "The Roaring 2000s", Harry S. Dent,Jr. correctly predicted the bust in 2008. His basic theme was that "We" innovate and grow in spurts, followed by a period of assimilation (little growth). Its a very interesting postulation, and has certainly worked out many times.

2008 Aug 04 11:56 AM

[John Lounsbury:]

You could have made the 14,164.53 high on 10/9/2007 as the end of the growth cycle. It is true that the NASDAQ and S&P 500 showed their last top in early 2000, but you indicated you were discussing the DJIA.

That being said, very stimulating article.

2008 Aug 04 01:11 PM

[Hefaistos:]

Concept for this article is nice... but it is a fundamental error to do this kind of technical analysis of long-term developments based on a linear scale chart. If you redraw the chart with the needed log scale, you will get another picture, other conclusions.

Apr 11 02:57 AM