October 8, 2008
Long-term Dow Industrials with Key Fibonacci Levels
Here’s a quarterly chart of the Dow Industrials going back to the 1960’s. Measuring off the 1982 low, the key Fibonacci retracement levels are:
1) 38.2% = 9071
2) 50.0% = 7487
3) 61.8% = 5903
Given the ugliness of the chart and the possibility of a generational change of trend here, anything is possible. Be mighty nice if 9000 held.
Cat: | Time: 2:07 pm (utc+8)
October 8th, 2008 at 7:13 pm
dude you’re scaring me w/ the chart
October 8th, 2008 at 8:17 pm
Nice chart.
Given the long advance since the 73-74 bear market, a move back to the light blue line (7500) seems rather reasonable. I’m not saying it gets there, but I wouldn’t be shocked if it did.
It’s time to purge the excesses.
October 8th, 2008 at 8:54 pm
Even a retrace to 7,500 on the Dow seems mild, considering that much of the apparent wealth created since the tech bubble was from the housing bubble.
The train wreck just started and I see no sign of it stopping.
October 8th, 2008 at 9:00 pm
The Dow Industrials are yielding $327.82 last I looked, so it doesn’t make sense to me that it could fall back to 7500, and even 9000 looks very cheap to me, but god knows I’ve gotten it wrong lately about things “looking cheap.”
October 8th, 2008 at 9:31 pm
Here’s how it all ties in in my opinion:
1) The Federal government in the US is owned by multinational corporations.
2) The US has exported the manufacturing base because it boosts corporate profits.
3) Therefore the emphasis is on inflating asset prices since the economy has been made to depend greatly on paper assets/investments instead of real manufacturing.
4) In turn rising asset prices induce foreign investment which in turns finances the huge deficits which this entire policy has created.
And that is how it all used to go around full circle. Until now, when keeping asset prices inflated is no longer possible. Therefore the US is in much more trouble than ever since not enough manufacturing takes place to sustain an economy of the artificial size that had been created based on paper assets. So the economy has a lot of potential to shrink and reflect it’s true size going forward I’m afraid.
October 8th, 2008 at 9:32 pm
If other Dow components follow the banks’ cuts in dividends to keep more cash on hand to weather the credit crisis, that $327.82 disappears very quickly. ;)
October 8th, 2008 at 9:42 pm
I think it could go all the way back to the 3000-3500 area eventually. Secular bear market here.
October 8th, 2008 at 10:00 pm
This is the chatter that bottoms are made of (but I’m hopeless, aren’t I? :) )
October 8th, 2008 at 10:20 pm
I bought some BAC @ 20.65 and GOOG @ 330.15 for long term holds. Havn’t been long in ages but I couldn’t resist. Call me crazy!
October 8th, 2008 at 10:24 pm
@Cap: Probably a good time to add stuff to the Buy & Hope portfolio, but I’ve been so wrong for so long that I’ve even lost my 12 original readers. :-)
October 8th, 2008 at 10:38 pm
Stuck with us 4 drooling dullards then. Welcome to the jungle.
October 8th, 2008 at 11:22 pm
CM said:
” …so it doesn’t make sense to me that it could fall back to 7500, and even 9000 looks very cheap to me …”
Keep in mind, “cheap” is a relative word. Cheap compared to what ? I think many will be surprised at how much consumers will pull in their horns and how badly retail spending will be hurt.
This is a similar conversation that took place back in mid 2006 when the real estate market was being discussed. As it turns out, that was still a good time to sell your house. Will people be saying the same about this period in the stock market come 2010 ? Time will tell …
It gets worse before it gets better.
Just one person’s opinion, as always.
October 8th, 2008 at 11:55 pm
This right here would be a very high “bottom”.
October 9th, 2008 at 6:36 am
Sometimes I think that the Chairman is having fun at our expense. First, it was the shotgun shells and dried foodstuffs thing; and now it’s this chart. Why not put up a 100-year chart and draw the Fibonacci levels to get everyone scared? After all, this is probably a once-in-a-century economic collapse. We lost 1000 points in the DOW in the last 3 days. By Christmas, we’ll be at Dow 55.
Just 6-8 years ago, the tech bubble exploded, a recession took place and 9/11 happened causing the sell-off from 2000-2002. There were more books in the bookstores about the coming Depression than there are now. Otherwise sensible people who watch a lot of TV and read message boards couldn’t be reasoned with. Is someone going to resurrect Prechter’s books now too?
Dow 3000? Why not post a chart of 1966-1982 to show the people what a secular bear market looks like? The Dow bottomed after about a 45% drop in the middle of the 1973-1975 recession. But the teevee tells me: this time, it’s different.
October 9th, 2008 at 6:44 am
@Anthony: I’m as manic-depressive as the next fool, unfortunately. Let me clarify: I can easily see the Dow going to 9000. If things get really awful, I can see it going to 7500. If it’s the end of the world as we know it, I can see it going to 5900. I’m serious when I say you should do everything you can to minimize your expenses (manage monthly cash flow). And I’m serious about owning a shotgun (I have a Mossberg 590 sitting across my lap as I type this, but remember I’m a lunatic). :-)
October 9th, 2008 at 7:29 am
Anthony such a long term view is precisely what is needed to gauge the potential losses for this secular bear market if indeed we are entering one. People have become extremely complacent and simply ignore how far markets have come since 1982 the last secular bear market low.
October 9th, 2008 at 7:34 am
Anything can happen and it never hurts to prepare. Each prepared individual is one less person that our over-obligated nanny state will have to look after if the shit hits the fan - - and the less bad it’ll all be for everyone else.
…I had never owned a gun but I got my Mossberg after watching people huddled together and scared in a lawless New Orleans after Katrina.
October 9th, 2008 at 8:56 am
Chairman,
Are we getting close to a TD buy signal yet on the S&P? How is the setup / combo looking?
October 9th, 2008 at 9:10 am
I remember all the pundits saying sometime ago that the US wouldn’t go through a protracted downturn like Japan because “American capitalism” would take the quick and necessary steps to deleverage. So much for that.
October 9th, 2008 at 9:29 am
Shotguns! Never take a shotgun to a gunfight. automatic .22’s or 9mm if your are willing to protect.
Shotguns are for ducks. Nice chart. The people in New Orleans were huddling in fear because all the reasonable, armed people had left.
October 9th, 2008 at 9:39 am
At this pace it will take about 19 more days to get to zero… or we could do what the Russians did and close shop after the near 70% ytd drop.
October 9th, 2008 at 9:54 am
@john: Excellent lesson to draw from Katrina! (That and don’t build in a flood zone.)
@Soulek: What time frame are you talking about?
@Hudson: I can’t hid the broadside of a baboon with a .22 or 9mm (especially under pressure), but with the shotgun you just have to get the very general direction right to take care of things.
October 9th, 2008 at 9:56 am
The local gun club is advertising on the radio that everyone should have at least one of the following: (1) a shotgun, (2) a pistol, (3) mastery in Brazilian jiu-jitsu. They give lessons in all three.
Well, my wife and I don’t like guns. So, as the world approaches the “end of days” in the near future, would being able to make all of the neighborhood teenage punks “tap-out” be the right course of action?
October 9th, 2008 at 10:05 am
@Anthony: It probably takes a decade of hard work to become proficient in jiu-jitsu (not to be confused with jew-jitsu which you can be born good at), so you may want to go with the shotgun. I am DEEPLY OPPOSED to handguns and believe they should be outlawed. That said, they’ll only get my shotgun when they pry it from my cold fingers (or whatever the mud flap says).
October 9th, 2008 at 10:49 am
I’m willing to compromise. How about a taser and pepper spray? The police have shown how lethal they can be. Of course, if you’re expecting hordes of armed lunatics to be entering my home, I might get 10 cans of hair spray, an air rifle and a zippo: http://www.youtube.com/watch?v=ujlCYs5Clgc
October 9th, 2008 at 11:05 am
@Anthony: You’re my kind of smart-ass. :-) I can’t watch that video from “work” but I’ll be sure to check it out later.
October 9th, 2008 at 11:53 am
Looked at some charts overnight, and if market breadth still means anything in this market, we should be close to at least a short term bottom.
October 9th, 2008 at 12:16 pm
Daily
October 9th, 2008 at 9:17 pm
Soulek: Here ya go… don’t say I never did nothin’ for ya.
October 9th, 2008 at 10:33 pm
Thank you Chairman. :)
October 10th, 2008 at 7:22 am
I am not a gun nut but if you expect to kill two bad guys with a Mossberg in an average room, you better go buy a hacksaw…..
October 24th, 2008 at 6:24 pm
@camabron - keep in mind that a lot of that overseas manufacturing capacity is still owned by American corporations. As for the de-leveraging, well it seems to me that’s what’s going on right now — very quickly, indeed.
December 2nd, 2008 at 5:28 am
well, it appears the 50% level held recently but could be up for a test this week again. If this level approx 7,400 doesn’t hold…watch out! It or the 5,900 level should hold unless we are entering a depression. We have now been in recession for 12 months, it was on the news today, just as anyone with a pair of eyes could have figured out 6 months ago!
December 2nd, 2008 at 7:03 am
@Jeff: Yes, the 7500ish level is pretty key, but many people believe 5900 is in the cards now (which means it probably won’t happen :) ).