Zignals

The Obama Bottom

"You can speculate about the new sheriff in town and past being behind us. But I think the past remains very relevant. Take a look at these two charts and ponder one simple concept: "regression to the mean," which frequently involves overshooting in the opposite direction. "

Interesting charts. If you look at the period from 1880 to 1910 (S&P) the market continously traded above the regression line. From 1910 to 2000 the market spent the majority of its time below the regression line. One can argue since 2000 we have entered a 'positive phase' where markets trade above the line.

At some point the line will break, but we might have to wait decades before it does.