Comparing present with 1973-74 cycle
Twain is reputed to have said: History doesn't repeat, but it rhymes.
Is this market rhyming with 1973? This chart (created by a anon reader) implies that it just might be:
Note that any of these comparisons with history are merely rough outlines, and that things rarely repeat perfectly . . .
Monday, May 08, 2006 | 06:28 AM | Permalink
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I'm gonna keep repeating myself:
I made a Bullish call for the first half 2006 back in from December 2005: Dow 11,800, Nasdaq 2600, and SPX 1350 by mid year.
You can see this 2006 market forecast in print in the Business Week Year end issue). I repeated the same expectations in January (Here Cult of the Bear part III).
I anticipate up to a 25% sell off in the S&P into Q3/4
Posted by: Barry Ritholtz | May 8, 2006 7:35:21 AM
Go read the Cult of the Bear series . . .
Posted by: Barry Ritholtz | May 8, 2006 7:47:49 AM
Barry-
Why do you continually do the work for lazy "readers" who belong to the "It's going to the Moon!" crowd? It's got to be tiring for you. Hell, it's tiring for ME to keep reading it and I love your work. Just asking.
Posted by: Mark | May 8, 2006 7:52:06 AM
The macro environment today is frighteningly similar to 1974. Btw, both post 1929 and post 1968, the two prior equity bubbles, we had very nice rallies. Actually 1929's rally was huge compared to this rally.
The Transports retested their bear market lows in both instances. ie, 2002 lows. I surely don't see that happening but to ignore the possibility ........
Posted by: B | May 8, 2006 8:52:41 AM
Is 1350 something you just feel in your gut? 1350 is a .87 retracement of the 1550 (1558?) high.
That's not fib friendly. A 75% retrace would fit into Gann (if I understand that correctly).
Why 1350? Just a hunch.
Do tell Senior Ritholtz.
-Mike
Posted by: Mike | May 8, 2006 9:09:59 AM
It is interesting that the chart is in Italian: "The correlation between the two series is at 60%."
Posted by: GRL | May 8, 2006 9:23:13 AM
hence the phrase "rough outline . . . things rarely repeat perfectly"
Posted by: Barry Ritholtz | May 8, 2006 9:34:23 AM
Barry, thanks for posting my chart.
As you properly commented this charts are rough outlines, i'm not in love with analog charts myself.
A 60% correlation is quite high though, imho, and that's why i linked it to you in a previous post.
So this is no pray, no hope, no forecast at all... just playing around with numbers but sticking to a macro vision.
Posted by: enrico | May 8, 2006 9:58:17 AM
La prima vitima de la saggezza e le innocenza.
GAWD Barry! Remaining longer term bearish on the markets in the face of ALL THIS GOOD NEWS! IDIOT!
I mean, you've gotta be one of the few true believers still left. I expect a formal apology permanently posted at the top of your homepage when the Dow hits 36,000 in 2008. Wait, did I say 2008, I meant next Tuesday!!!
In all seriousness, I expect to be pushing up daisies when the Dow hits 36,000 in, oh, say, 2025 or so. And the increasing number of flames on the website tell me you may hit the nail on the head with at least two of your predictions. I happen to disagree that the COMP will get anywhere close to 2600 in the second half, but the Dow and S&P predictions are looking pretty precient at the moment.
Posted by: Bynocerus | May 8, 2006 10:12:43 AM
I meant first half - not second. Oops
Posted by: Bynocerus | May 8, 2006 10:26:39 AM
Byno - You may be right as to the Nasdaq -- The big cap nazzy stocks are going nowhere fast: Intel, MSFT, DELL, CSCO, EBAY, SUNW, ADBE etc.
But the Dow and the SPX calls are lookin none too shabby (better to be lucky than good).
Posted by: Barry Ritholtz | May 8, 2006 10:36:39 AM
I was beginning to wonder if they could hold the averages while a rotation took place under the surface that would pump up tech one final time. Still might but it appears tech is doomed to continue its underperformance in this cycle. The bulls just keep pushing the same theme. And, with summer coming, I can't see a breakout in tech.
Speaking of bulls, er bullsh*t, who is this company that wants to buy Inco for $16 billion? They are taking down one of my favorite investments! An easy, very low risk 50% on each reflationary cycle. Inco has been public for at least forty years. It has followed the price of nickel up and down every reflationary cycle. Well, there is no need for a log scale over the last forty years. It's been range bound between 10 and 30ish. So, now in a massive metals bubble, they are going to be taken over for 2x the highest price ever achieved in a range bound commodities stock? Are you kidding? When they could surely pick it up in the future for 40% of that price? Maybe the near future?
How can I get one of these Wall Street jobs where you "con" companies into this ridiculous M&A scam? I wonder what Buffett, Grantham or Graham would say about this merger.
Posted by: B | May 8, 2006 11:03:10 AM
Barry-
What's the latest on the advisory service? Or did all our comments that we would gladly pay 50 cents per week for that scare you off? Or have sales of The Sweater been so rich that the advisory service is unecessary? :)
Posted by: Mark | May 8, 2006 11:19:37 AM
Here's a thought on those year ends:
Wednesday, Ben Dover says that the Fed has decided to pause, immediately causing a huge spike in the markets. Unfortunately for the bulls, the indices are already overbought, and a spike to 1350 on the S&P causes maximum over-boughtness. The rally gets faded from 3:00 on, and that's all she wrote for the three and a half year old rally.
Seem plausible to anyone?
Posted by: Bynocerus | May 8, 2006 1:03:35 PM
Mark,
Maybe we should up the ante to a buck. Actually, I'd happily pay more than RM charges for Ritholtz institutional research, but like you, I haven't seen any new news.
Posted by: Bynocerus | May 8, 2006 1:05:26 PM
Byno-
Or, alternatively, they hike to 5, and hint there's likely to be more coming, sending the market into a broad sell off. Nah. Anyway, I have been thinking May as the top for this pig for 3 months now.
Doesn't matter to me. I'm hedged out the wazoo and could care less about Livermore's "the last eighth"of this trade.
Posted by: Mark | May 8, 2006 1:20:21 PM
While the internals are deterriorating and the dulls of summer are around the corner, the market seems very strong in the same theme stocks. It's sort of funny that the NDX has made its high for the day during this short rally in the first 30 minutes then basically treaded water the rest of the day. That looks like a buyer's strike to me.
Looks like the bulls sent out an expeditionary force this morning with some reasonable volume. I think they are sniffing bears and trying to see if they can pop out and shorts. No success if that is what happened, they gave up in the AM. Let's see what happens post 2pm. Maybe another short squirt up. I just wonder how many bears even have shorts in place any more. We are moving in on a seven month rally and that is the longest this bull cycle along with 2003. Final wave #5? A few more months at most. And if we got a few more months, I'd be worried that the downside would simply be worse. Alot of this "stuff" theme looks like blow offs to me. 30-50-80% moves in six months in whole sectors. That is not orderly, sustainable market behavior. I like 80% but on a large cap in six months, it wreaks of unhealthy greed.
The market could indeed tank on Bernanke's news BUT some data I'm looking at says we might be readying another assault to the up side. It's hard to believe but what the hell. I can't believe copper is at $3.50 either. MIGHT IS THE KEY.
Posted by: B | May 8, 2006 1:27:37 PM
We had one minute on the Q's that traded 600 shares? Uh, on a good day we get 130 million shares traded. 5 million so far on the semis that usually trades 30 million. Anyone else notice this? This has happened a few times recently. The volume is drying up. Even Friday volume sucked. The tape is almost eerily quite.
Posted by: B | May 8, 2006 1:43:05 PM
Would you wanna hop in the way of BOHICA Ben (wink and a nod to the military guys)? I wouldn't be doing shit till 2:15 Wednesday, and even then, I'd wait to see the initial reaction so I could play the fade.
Posted by: Bynocerus | May 8, 2006 1:52:37 PM
Some folks here need to look at Mandelbrot's work... markets are fractal....
Posted by: donna | May 8, 2006 1:55:12 PM
Mandelbrot pulled his hair out and proved nothing about market action. I don't buy that thesis completely either. It implies chaos as a foundation. A very smart mathematician but he he can't pick stocks or market direction as well as a good quant and he spent many years trying to formulate a mathematical foundation for markets with no success.
Posted by: B | May 8, 2006 2:08:24 PM
Doesn't Ron Sen over at Technically Speaking subscribe to Mandelbrot a bit? (as well as DeMark)
Posted by: Mark | May 8, 2006 2:13:04 PM
I remember when Mandelbrot got all of this notoriety because he had thought he was on the verge of finding the holy grail of market action. That was so long ago that I was a young engineer just out of school. That hype died a quiet death because try as he may, he was unable to prove anything or come up with anything you could use. DeMark is what Ron follows as I recall. I do to because so many people follow it that it is somewhat self fulfilling. Although anecdotally so. I've read all of Tom's work. Most I wonder why I did. I wonder how someone can come up with some of the stuff he does and say it has proven to work without any back testing. It isn't back tested because it too is alot of bullsh8t. That said, all of the blow off indices that were hot this cycle are on monthly Demark 9 or 13 sequential sells.
Posted by: B | May 8, 2006 2:23:39 PM
You were asking about Teck Cominco, B. They are a very well run diversified exploration and mining company. They will use their HUGELY run-up shares to acquire the merely overpriced shares of Inco. Seems okay to me from a strategic and value perspective.
Posted by: Mark | May 8, 2006 2:42:32 PM
Anyone read 'Complexity' by Mitchell Waldrop? Chaos theory is absolutely fascinating, but I agree it's more for backdrop and perspective than anything truly predictive... Texas Hold 'Em probably gives a better mental model for this market. Right now the bulls are doing a Doyle "Texas Dolly" Brunson and laughing from behind their big pile of chips. But the Brunsons of the world are also notorious for blowing out their stack out in just one or two bad hands.
Posted by: trader75 | May 8, 2006 2:43:16 PM
