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Monday, October 13, 2008

Dow & Past US Recessions

If a picture speaks a thousand words, do 14 pictures speak 14,000 words? *grin* For future reference:


Chan Kwang Yew said...

Hi Seng
your chart using linear scale is very misleading visually.In your small window chart No.1 the 1929 great depression, the drop is 89% it is not obvious or looked rather harmless visually is of much much greater magnitude than the 30% 2001 drop and the current 40% drop. If the hypothesis that the bull run since 1929 has ended and we are talking about a correction of 1929 magnitude, the Dow will have to go to 1600.

Seng said...

Err .. actually, this is not my chart, but is sourced from a source that is displayed on the lower right corner of the chart ... I don't have control over the choice of linear nor log scale. For me, I would look at the numbers.

And I don't think I am looking at an exact replica of 1929, or a 1600 Dow personally.

Chan Kwang Yew said...

Hi Seng
When CI started to drop from 1271.57 in February 1997, I never dream that it would drop below 300. At that time, it was only an Asean crisis. America, China and Europe has no problem. This time around, it is a global problem, China has dropped from 6000 to 2000, America in big big problem, Europe is the same.

If one were to interpret Dow base on Elliot Wave, Since the 88% drop from 380 in 1929 to 43 in 1932, The Dow has completed 5 wave from 1932 to 2007.

Wave one was from 43(April 1932) to 186(Jan 1937) 350% up within 57 months.

Wave 2 ABC correction from 186(Jan 1937) to 96 (Jan 1942) 48% drop within 60 months.Is interesting to mention here that even the B wave in second half of 1938 give a 61%up.

Then comes the major wave 3 from 96 (Jan 1942) to 969 (Oct 1965) up 900% in 285 months. Within this period there were 5 up wave each gaining 60% to 100% and 4 corrective wave with about 20% retracement each.

Wave 4 is an expanding ABCDE formation from 969(Oct 1965) to 607 (July 1974) 37% drop in 105 months. Comply nicely with Elliot Alternative rule :- Wave 2 short duration but sharp, then wave 4 must be Shallow and long duration.

Wave 5 from 607 (July 1974) to 14164 (Oct 2007) a 2233% gain over 363 months. The magnitude of pullback of 40% indicates clearly Wave 5 has ended.

I mentioned 1600 earlier, but actually it is possible but unlikely. If I consider 1929 to 1932 as Major Wave II and the 88% drop within 60 month as sharp and short duration, if I follow the rule of alternation again, this Major Wave 4 should be shallow and long duration. Possibly a contracting ABCDE formation, if this is the case Wave A gives the biggest drop, it can be anything between here and 7100(50%). But this ABCDE can drag until year 2118 for a period of 120 months. Wave B and D can produce a gain of 50% to 30%.

Sometimes I call this Elliot Wave an Idiot wave because whatever the ultimate outcome or wave formation, it can fit into one of Elliot's wave count. Elliot can never be wrong, it is always the user that has counted the wave wrongly.

I shall stop here to look at US market that will start in 6 minutes from now.

Chan KY