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Michael J. Clark was born and raised in Sinclair, Wyoming. He is a poet, novelist, artist, historian, and market analyst. His fine arts portfolio can be found at the following address: http://www.hoalantrangallery.com/MJC2.htm His writing portfolio can be found at:... More
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  • NDX FOLLOW-UP FOLLOW-UP CHART: Looking a lot like the Dow Jones Industrial Average Chart from 1929 13 comments
    Jan 4, 2010 3:45 AM

    I have written that the 1930 Dow Jones Industrial Index chart and the current NDX (Nasdaq 100) chart bear striking similarities -- (I apologize for the unintended pun).

    Can one draw conclusions about the current market by the behaviors of the 1930's DJIA?  Perhaps not.  But the similarities seem striking.

    3 years from top to bottom.  8 years from top to top.  Then the DJIA endured 8 more years of range-bound consolidation.  Is that where current markets are headed?  I believe they are.  (I believe investors will be range-bound until about 2019 -- but that belief is not central to this article.)

    I'm not saying markets will act in exactly the same way.  But the similarities are quite amazing at the moment.  If the NDX breaks through the 2007 high, then the similarities will end.  But if it turns back and starts lower, then the mirror-reality might endure for a bit longer.

    Disclosure: Author owns none of the issues mentioned in this article.

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Comments (13)
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  • Niner
    , contributor
    Comments (790) | Send Message
    Are you comparing apples to oranges by comparing the Dow to the Nasdaq 100..... I personally think it's a stretch.
    4 Jan 2010, 10:42 AM Reply Like
  • Northern Dancer
    , contributor
    Comments (733) | Send Message
    It's not a stretch at all when the exercise is to compare price patterns and economic activity as expressed in charts from different eras. Your argument would suggest there's no value in comparing any American index with the Japanese experience. To the contrary, there's great value in searching for clues from the past. As the old saying goes, "those who do not know history are doomed to repeat it". I'm not suggesting that we'll necessarily absolutely gain total certainty about what will happen with the markets in the current era by looking at past action, but we'd be nuts not to look at what happened in the past. The fact that the author is comparing the Nasdaq to the Dow is of course looking at two completely different types of markets, but the comparison is more about how the markets acted and reacted in the past. There's definitely value in at least doing the research.
    4 Jan 2010, 11:33 AM Reply Like
  • Michael Clark
    , contributor
    Comments (11825) | Send Message
    Author’s reply » A stretch? When one market goes up, they all go up. When a market goes down, they almost all go down. The idea of diversification works in a sense in a bull market, since sectors tend to lead and then fall out. But, generally speaking, investor greed or investor fear move all markets pretty much together.
    5 Jan 2010, 12:16 AM Reply Like
  • TXBankingExec
    , contributor
    Comments (123) | Send Message
    Actually its not a stretch at all. In 1930, the DJIA actually reflected the overall US equity market fairly well as there were far few equities trading and substantially fewer liquid issues. Today, that isn't so much the case as the US equity market is far broader than it was then. Today, a broader index is much more reflective of overall sentiment versus 1930, the only question is, should the Nasdaq 100 be used, or an even broader index?
    4 Jan 2010, 11:14 AM Reply Like
  • Niner
    , contributor
    Comments (790) | Send Message
    I agree with the broader index. I prefer the S&P 500 for that. I'm not for sure what the make up of the NDX was in 1999-2000; but, my quick glance at it today seemed to indicate it was heavy Tech etc. When I did an overlay of Ndx, S&P500 and the Dow, the NDX had a mountain at 1999-2001 when S&P and Dow only had mole hills. I still fail to see the relevance of comparing the Dot.com bubble to the Great Depression. I would think that comparing the Great Recession with the great Depression would be a much more realistic endeavor. I think the similarities in the charts are about as amazing as the fact my mom has a striking resemblance to Mona Lisa.


    One of the major theories here is that we are in a Bear market (secular) and that it started in 2001 with the bursting of the Dot.com bubble. I reread the definitions of bull markerts, bear markets, secular bulls and bears, and the Dow and the S&P 500 do not support this theory. There is a real good chance that the NDX is the only index that might support this theory. The Bearish trend in the NDX was broken, in my opinion, when the index failed to make a lower low in Nov 2008. It's all a matter of semantics and interpretations. But, by my understanding of the terms Bull and Bear markets, no other index supports the 2001 beginning of a secular Bear market.
    4 Jan 2010, 01:32 PM Reply Like
  • Niner
    , contributor
    Comments (790) | Send Message
    ooops. the second low was in Aug/Sept 2008 and not Oct. It was also 30% higher than the first low (795vs1046).
    4 Jan 2010, 01:57 PM Reply Like
  • Michael Clark
    , contributor
    Comments (11825) | Send Message
    Author’s reply » However you define Bear Market, it's hard to argue that the Great Depression ended in 1932, when the Dow made a bottom and started back up.


    My argument is that the Economy is in a Night-Cycle (the economy can't expand, and is going to contract until 2019) and that the stock markets will be hampered during this time, rallying, falling back, moving sideways....and won't make a new high until about 2019 -- ie, the NDX won't move past its 2001 high until 2019 or later.


    Bear Markets have rallies; Bull Markets have corrections. Defining which is which is always a bit tricky.


    But markets don't really go up permanently during Night-Cycles. You must either trade the rallies, short the corrections...or go fishing. You won't make money buying and holding unless you plan on passing your shares on to your grandchildren.




    DAY-CYCLE1923*-1929:Po... 400% - positive 67% per year.


    NIGHT-CYCLE 1929-1947: Negative 47% : Negative 3% per year.


    DAY-CYCLE 1947-1965: Positive 386% : Positive 22% per year.


    NIGHT-CYCLE 1965-1983: Positive 22%: Positive 1% per year.


    DAY-CYCLE 1983 - 2001: Positive 915%: positive 51% per year.


    NIGHT-CYCLE 2001- 2019. To be determined.


    I'm not saying that the NDX and the DJIA circa 1929 are the same thing. I'm marveling at the similarities, so far, of their charts. Although I think a case can be made that the NDX represents the 'great' American companies of today, as the DJIA represented the great American companies of the Great Depression era. The current DJIA is siphoning tech companies into its index and jetisoning 'industrial' companies as quick as it can. The NASDAQ is the index of America's future today.


    *Could not find DJIA price quotes back to Day-Cycle beginning, 1911.
    5 Jan 2010, 12:47 AM Reply Like
  • Michael Clark
    , contributor
    Comments (11825) | Send Message
    Author’s reply » I think the KEY for the NDX is that it needs to make a new high -- break resistance at 2239.23 OR it will look almost exactly like the DJIA circa 1938 when it failed to make a new high and settled in to its 6 year consolidation, side-ways move.
    5 Jan 2010, 01:00 AM Reply Like
  • Niner
    , contributor
    Comments (790) | Send Message
    Just a quick blurb. In regards to buy and hold investing, my brokerage firm in accordance with FINRA rules has classified both my accounts as daytrading accounts. I'm not a real buy and hold kinda guy. I do have stocks I have held for 12+ months though.
    5 Jan 2010, 06:44 AM Reply Like
  • thiazole
    , contributor
    Comments (2236) | Send Message
    I think these ARE quite valid comparisons (good job Michael - I'm liking your analyses more and more). Industrials in the 1920s and 30s were more like the tech sector of today (industrials were replacing agriculture and were the "hot new thing" back then).


    I don't think one can use such comparisons to make accurate predictions about the future (at any point, they could dramatically diverge), but they are quite useful in comparing two eras (and they can be useful in studying secular market trends - like the fact that the Dow peaked out in 1929 and didn't break through that high until the next secular bull market started - it did pretty much the same the same thing in the mid 60s, and the S&P did the same thing in 2000).


    The reality is, 2001 was the beginning of this current secular bear market just like 1929 was the beginning of that secular bear market. Also, I think the 1937 recession and stock market was much more like this this recession and stock market than 1929-32; while 1929-32 was a much deeper recession than 2001, they were both started from stock market bubbles popping (and we are talking about stock market comparisons here, not GDP growth).
    4 Jan 2010, 05:20 PM Reply Like
  • Northern Dancer
    , contributor
    Comments (733) | Send Message
    Hey Michael (and all readers)... you've just gotta see this article from today by Karl Denninger:




    And here's one of my own charts to go along with the discussion. Check out that volume too:




    Tell me what you think it means. It's serious as hell would be my guess.


    4 Jan 2010, 05:54 PM Reply Like
  • Michael Clark
    , contributor
    Comments (11825) | Send Message
    Author’s reply » Northern: I did read that KDenninger article. In fact, I read three articles that same day about how the bond markets were set to collapse in America and Japan and a view from Eric Sprott that we are in a Bear Market that will last 15-20 years and we have endured 9 year so far...which corresponds to my view.






    Some hedge funds are starting to wager on painful times ahead for Japan, the world's second-largest economy.


    These investors, including some who made successful bets against risky mortgages and financial companies in recent years, anticipate trouble for Japan's financial system. Their concern: Government borrowing continues to climb while demand for the nation's debt could taper off.


    A collapse of the Japanese government-bond market "is going to happen; it's a question of when," said Kyle Bass, head of Hayman Advisors LP, a Dallas hedge fund, who has placed wagers on that outcome. He and others, such as David Einhorn's Greenlight Capital Inc. and a fund run by Daniel Arbess of Perella Weinberg Partners LP, have been buying a variety of investments that could pay off if the Japanese bond market crumbles....


    Sprott Says S&P 500 to Tumble Below its March Low (Update1)
    Share Business ExchangeTwitterFacebook| Email | Print | A A A


    By Matt Walcoff


    Dec. 29 (Bloomberg) -- The Standard & Poor’s 500 Index will collapse below its March lows as an expected rebound in economic growth fails to materialize, according to hedge fund manager Eric Sprott.


    The Toronto-based money manager, whose Sprott Hedge Fund returned 496 percent over the past nine years while the S&P 500 lost 32 percent, said the index’s 67 percent rally since March reflects investors misinterpreting economic data. He’s predicting the gauge will fall 40 percent to below 676.53, the 12-year low reached on March 9.


    “We’re in a bear market that will last 15 or 20 years, and we’ve had nine of them,” Sprott, chief executive officer of Sprott Asset Management LP, which oversees C$4.3 billion ($4.09 billion), said in an interview Dec. 18.
    5 Jan 2010, 12:54 AM Reply Like
  • Michael Clark
    , contributor
    Comments (11825) | Send Message
    Author’s reply » Sorry for replying to my own post. IF Japan defaults on its bonds, then we'll see our own future, as Ben Bernanke is currently leading us into the Black Forest by following Japan's footsteps. What this will mean is that Japan DID NOT avoid the Great Depression by hiding its bad loans and lowering its interest rates to zero....it just put off the inevitable for an extra decade or so, making the unavoidable deflation stage even longer and more miserable than it needed to be.
    5 Jan 2010, 01:05 AM Reply Like
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