Comparos to 1973
Via Jim Stack, comes these terrific series of charts comparing the 2006 markets with what I have previously referred to as the better analogy than 1994.
What I find so astonishing about these divergences is the Transports, depsite the 20% drop in oil and 30% drop in gasoline, cannot keep up with the Dow. Intriguing.
A picture is worth a thousand words, so I will let these graphs do the talking:
The 1972-73 top:
The 2006 markets:
Wednesday, October 11, 2006 | 03:15 PM | Permalink
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The primary rule of investing is don't lose money (i.e. manage risk and cut losses).
Posted by: Estragon | Oct 11, 2006 3:58:02 PM
Hey Barry,
This is only the second time in ~4 years I've written, so I have not had the chance to express my appreciation for the work and the thinking that you put into the Big Picture. While I occassionally don't agree with a conclusion, you always make me think. Thanks.
Regarding the gap between the DJIA and the DJTA: it is my impression that while expectations for corporate profits are strong, the transports are more closely tied to consumption and consumer expectations. At the same time, the transports are heavy users of petroleum, so most guidance from the Street and from the companies themselves trended negative in Q3 as diesel prices hit $3/gal. Falling petroleum prices should boost consumption allowing for improvement on both the top and bottom lines in Q4. Once the herd decides the economy isn't headed for receission, the fundamentals are in place for some healthy appreciation in quality transportation names.
Posted by: Kenny Vieth | Oct 11, 2006 4:25:36 PM
You make a good observation about very similar looking movements in respect to predicting the future of the markets.
However, in our research, it is clear that even very similar patterns are not entirely predictive, and very specific analysis must be conducted to determine whether you have a pattern that is likely to reoccur. That is, 50%+ of the time your very specific, long-term pattern, equals a predictive move.
Posted by: Hot Market Odds.com | Oct 11, 2006 5:07:33 PM
I dunno Kenny. Maybe I'm simplistic, but a simple overlay of the transports w/ crude shows a remarkable "correlation" over the past 4 years. From 10/02 to 10/06 transports rocketed, from 2000 to 5000, all while crude was going from $30 to $80, both peaking recently. Obviously ALL indices rose strongly alongside crude. So, while I believe higher costs should lower demand, it appears the great liquidity pump has nulled that theory, lately anyway. And it will be that pump that determines future gains/losses in all asset classes. Just my opinion.
Posted by: mike | Oct 11, 2006 5:10:10 PM
Shift your red line to the left a little bit - looks like things might have more in common with the November time frame.
Posted by: Mark | Oct 11, 2006 5:40:35 PM
liquidity pump goes seriously negative 1 day after the Nov election, markets get stomped for 2 long years in preparation for '08 presidential year rally
Posted by: scorpio | Oct 11, 2006 5:45:43 PM
looks like everybodys finally bearish. a month ago barry would have posted a chart like this and everyone would have jumped on board about how the end is nigh. sentiment was the missing piece of the puzzle. The only thing bothering me about being short is thatv we are entering the strong part of the year. i find the change in the commentary on this board amazing.
Posted by: zack | Oct 11, 2006 5:49:32 PM
Okay, now we have another "Mark" giving yet another email address? I can't keep it straight myself.
Posted by: Mark | Oct 11, 2006 6:02:11 PM
DJIA has been looking very toppy for the past 4 days or so, as has SPX. I held my DIA calls, but went ahead and dumped QQQQ calls this morning and may do the same with DIA in the next few days.
I think chart comparisons are interesting but am not sure how compelling snapshots from 34 years ago are even when you are looking at long term behavior. If nothing else, there has been a dramatic loss of transparency in the domestic markets since 1987 (i.e., the PPT, hedge fund mischief with derivatives, slack regulatory efforts regarding insider trading, changing metrics as needed, etc.). Throw in the relative isolation from other markets and economies that we had in the early 70's and the entry of China and India and Russia into the global markets and I'd say there are more differences than similarities.
As far as the transports go, I agree that their problems have little to do with oil prices since they went up in tandem with oil. Their underlying issue is that businesses are not shipping as much stuff because things are slowing down in general and have been for 6 months or so. We could argue all day about why things have slowed down, but I'd say it has a lot more to do with ripple effects from housing (structural) than with prices at the pump (transitory).
Posted by: whipsaw | Oct 11, 2006 6:24:08 PM
The market is complete bullshit. There are no fundamentals at work, no hidden reasoning, just an upward push.
Whatever anyone has to say about the market is probably wrong.
The markets are simply reflecting the flim-flam nature of the financial industry. It looks rigged. If it looks to good to be true, it probably is. Enjoy it. Maybe it's real, maybe it's NASDAQ 2000.
Bring on the bad or good or manufactured, massaged, fabricated, or whatever news ! Happy bullshitting !
Posted by: blam | Oct 11, 2006 10:26:19 PM
Points to live by:
1. Correlation does not equal causality
2. "History doesn't repeat itself, but it rhymes"; Mark Twain
3. "Those who really know, don't say"; anonymous
Posted by: HT | Oct 11, 2006 10:28:27 PM
per blam:
"The market is complete bullshit."
Indeed, I suppose that is what I was saying in an oblique way. Soo....
1_Can markets scale beyond the village level without becoming corrupted?
2_If so, at what point to they become subject to corruption by private interests which use scale of wealth to manipulate?
3_In any case, when the govt starts shoving markets around via the PPT and other intervention devices, aren't they corrupted beyond repair?
4_Conversely, when the govt professes to be regulating markets against the scourge suggested in 1 and 2, above, but is either complicit or indifferent, how does that impact pricing?
5_When people can use terms in public like "Islamofascism" and nobody points out that fascism is by definition "a radical political ideology that combines elements of corporatism, authoritarianism, nationalism, militarism, anti-anarchism, anti-communism and anti-liberalism." and involves the synergy of the state and the corporations, doesn't that mean that things have reached the point that corporate media is part of the state and can/will help push the markets around as needed?
Posted by: whipsaw | Oct 11, 2006 11:54:26 PM
You forgot to mention that the Tigers played the Athletics in the 1972 ALCS. Kind of creepy, huh?
Posted by: John H | Oct 12, 2006 12:25:21 AM
What if we get an A's vs Mets World Series!!!
1973 all over again.
Posted by: kennycan | Oct 12, 2006 5:46:12 AM
Pattern recgonition is apparently hard wired into our wetware.
The problem is there are far too many false positves; What appears to be a pattenr is merely a random coincidence . . .
Posted by: Barry Ritholtz | Oct 12, 2006 7:19:43 AM
Liquidity pump firing on all cylinders => another Record Trade Defecit. We need $83b /month though to get to a cool $1,000,000,000,000. Maybe if we pump a little harder.
Its always good for stocks and BONDS too!
Posted by: tjofpa | Oct 12, 2006 11:01:24 AM
Market is being manipulated
Posted by: bob | Oct 14, 2006 3:01:41 PM
