IBD: 1930s DOW vs NASDAQ Correlation

Includes: DIA, QQQ
by: ContraHour

This weekend, Investors Business Daily re-published a chart comparing the NASDAQ since 2000 to the Dow Jones Industrials from the 1930s.  I had stopped using the chart because the Dow staged a much more linear recovery in the 1930s compared the choppy and meandering NASDAQ.  However, the correlation worked well in anticipating a final top.  The 1937 and 2007 tops line up relatively well. 

If the analogy were to continue, last week's sell off should mark a temporary bottom, with the overall market staging a dramatic rebound.   After the initial surge, the market will basically stay in a trading range until it re-tests the recent lows over the next 12 to 24 months.   The next two years will be a tough environment for investors, a better one for traders.

I have re-produced the NASDAQ vs DOW 1930s chart below (click to enlarge).

Source: Bloomberg