Dow Channel
Excellent graph from Chart of the Day. Note the Dow is now just above its 2000 highs, but at the top of its long term trend channel:
This suggests that even a pullback towards 11,000 (or even ~10,750) will not be a break of the 3 year move.
At the same time, we see Sentiment is fairly high:
September 29 AAII Survey
This is rarely a winning combination . . .
Friday, October 06, 2006 | 11:15 AM | Permalink
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More of the Alfred E. Neuman Market.
Posted by: Mike M | Oct 6, 2006 11:13:36 AM
I think you need the DOW graph to be plotted inflation adjusted. That will make the tunnel horizontal and much more visible.
Posted by: bob | Oct 6, 2006 11:34:13 AM
The AAII reading for Oct 5 just came out and the bullish percentage is way down - from 51% on 9/28 to 38% on 10/5. Bearish percentage went from 33% to 47%!
It is pretty unusual for this to drop so much when the market is moving up - maybe AAII members are mostly in smaller stocks and are not seeing gains over the last week?
Posted by: Smokefoot | Oct 6, 2006 11:47:37 AM
Inflation adjusting would provide an interesting look although to a US investor whose liabilities are also measured in dollars the actual impact of an inflation adjusted market return might not matter as much; e.g., paying off debt with cheaper dollars takes some of the sting out from a lower (inflation adjusted) market return.
Andrew Tobias adds an interesting twist. What about the Dow's return to a foreign investor? He comments, "in euros, [the Dow] is still only three-fourths what it was in 2000 – because back then a dollar bought 1.03 euros, whereas today it buys only about .78 of a euro. So to an Italian or a German ...the Dow is about 25% lower today than it was six years ago. To a Canadian ...same thing. In 2000, one of our dollars was worth $1.46 of theirs. Today, $1.12."
I haven't looked it up but feel fairly sure foreign participation is far greater in the US debt market ...still, I can't imagine any investor from a non-US developed country would be happy with a US equity position over the past six years. Off hand I can't think of a single currency from a developed nation that has depreciated relative to the $USD.
Posted by: RW | Oct 6, 2006 12:02:03 PM

transfer; massive
in an uphill; of course
a must, to whet the appetite of the gullible
wave b real up move to the left, before the transfer got into gear
test for supply and result in middle of channel;
then rally back to the ice
dips to near channel floor latterly;
then puts in another upsurge
the end of all this pallava is near
has to be
things cant stay the same for ever
Posted by: duncan Robertson | Oct 6, 2006 12:06:49 PM
When looking at charts, you only want to see price action -- not inflation adjusted, not Div reinveste -- just price action.
Posted by: Barry Ritholtz | Oct 6, 2006 12:50:00 PM
>>>The AAII reading for Oct 5 just came out and the bullish percentage is way down - from 51% on 9/28 to 38% on 10/5. Bearish percentage went from 33% to 47%!<<<
Right. After the most recent data, the bullish % is back in neutral, and the bearish % is actually on the high side.
All in all, pretty muddy. This data doesn't do much to indicate much upside or downside for now...
Posted by: Michael C. | Oct 6, 2006 12:52:04 PM
And as far as the trend channel, you have upside resistance with the channel, but you also have downside support with the recent breakout on volume.
So, again, pretty muddy.
Considering the nasty sentiment we had during June, if the market were to breakdown below 11,000 to 10,750 things would have to get that much nastier. Possible, but not exactly high probability.
Sometimes a chart does not tell the whole picture. We would have to break down back to the nasty >$70 oil, Lebanon invasion, Iran/SK nuke bottom. Now that would be nasty!
Posted by: Michael C. | Oct 6, 2006 12:57:47 PM
Where's the place on the Internet to post completely unsubstantiated rumors?
I just got back from lunch with a friend who works for Massey Knakal, the NYC commerical real estate brokerage house.
Her observation: Last couple of months, volume is down significantly. Prices (however you want to measure them- p.s.f., cap rate) retreating slightly. Will appear in statistics in a couple of months.
If people are turning down commerical real estate investments, they might be putting money into more liquid vehicles. That might be a contributor to what we are seeing with the new stock market highs.
Posted by: Sherman McCoy | Oct 6, 2006 2:06:12 PM
Isn't the most likely placement of the start of the top channel line right at the peak of Jan 2004? If so we have a market breaking out.
Posted by: kevinmr | Oct 6, 2006 2:07:47 PM
Kevinmr,
Nope, if you use the peak of Jan 2004 then we haven't reached the upper limit yet.
Posted by: PigInZen | Oct 6, 2006 2:27:39 PM
Money flows do not show investors embracing the rally.
http://today.reuters.com/news/articleinvesting.aspx?type=fundsNews2&storyID=2006-10-05T201839Z_01_N05267258_RTRIDST_0_FINANCIAL-FUND-TRIMTABS.XML
Might explain those AAII data points.
Posted by: Mark | Oct 6, 2006 2:27:49 PM
I did some research into insider activity at major names, and I'm astonished to see the levels of insider distribution across the board. I see it pointing to the fact that insiders in various industries and seemingly healthy companies are expecting a major and broad downturn.
Posted by: Slav Inger | Oct 6, 2006 2:38:27 PM
>>>I did some research into insider activity at major names, and I'm astonished to see the levels of insider distribution across the board. I see it pointing to the fact that insiders in various industries and seemingly healthy companies are expecting a major and broad downturn.<<<
Can you quantify that or be more specific?
Posted by: Michael C. | Oct 6, 2006 2:56:42 PM
So... why is nobody talking about the effects of the very real possibilities of:
-Democrats take control of congress
-Raise taxes
-Balance budget
-Reduce defense spending
-Hearings idictments into certain politicians
The market says these won't possibly happen or,
the market likes the possbilities?
Posted by: Bob A | Oct 6, 2006 3:15:43 PM
PigInZen -
How is that? Please explain.
From the graph it is obvious pinning the trend line to Jan 2004 leads to two scenarios both resulting in current prices well above the trend: pin the trend at Jan 2004 and Jan 2006 or pin the trend at 2004 and again at jan 2005.
I think the trend lines drawn above attempt to rationalize the authors bearish slant, poorly.
Posted by: kevinmr | Oct 6, 2006 4:05:08 PM
this is a liitl of topic but you must make sure that you see this page with historic bubble all star videos
with lereah quiting"t´here is no bubble" "it a baloon"
"builders won´t overbuild" etc. around 10-12 videos
from 2002-2006. with shiller, lereah, cnbc etc. fantastic. one of the best i´ve seen so far.
here is the link to the baloon quote . are real classic
http://www.paperdinero.com/BNN.aspx?id=18
have fun.
http://www.immobilienblasen.blogspot.com/
Posted by: jmf | Oct 6, 2006 4:38:12 PM
The put/call ratio is still very high and the nova/ursa ratio also indicates bearish sentiment. i really don't know what to think in this market.
Posted by: Ryan | Oct 6, 2006 4:55:42 PM
Kevin MR,
Those are the channel trendlines via Chart of the Day --
How else might you draw channel lines? I'm all ears on this . . .
Posted by: Barry Ritholtz | Oct 6, 2006 5:40:43 PM
Would all of the permanent bears on this website do me a gigantic favor? I would really appreciate knowing when you guys throw in the towel and go long this market. Then I'll know when to step aside and go short. Much appreciated.
contact: wemblee@yahoo.com
Posted by: jack | Oct 6, 2006 6:40:27 PM
"The put/call ratio is still very high and the nova/ursa ratio also indicates bearish sentiment. i really don't know what to think in this market."
The Put/call might be misleading, I see a lot of deep out of the money puts being traded against in/at the money calls. Those puts are near worthless, the calls aren't.
Posted by: Incognitus | Oct 6, 2006 6:52:13 PM
Sherman, there is absolutely no slowdown in the commercial real estate market. September was the busiest month every in terms of issuance, over $25 bln in deals came to market. Read today's NY Times about the Metlife multifamily property in downtown Manhattan that is being bid to a 3% cap rate. Delinquencies are near their lowest levels as well. The market is definitely frothy, but saying that it's slowing is just completely inaccurate
Posted by: phil | Oct 6, 2006 7:26:59 PM
I don't bother with the AAII survey. The Investor's Intelligence survey is better I think...
As of 10/4, II had 49.5% bulls and 33.3% bears.
In mid-June near the lfirst benchmark low of the summer correction, II had 36% bulls and 37% bears.
Posted by: muckdog | Oct 6, 2006 7:34:27 PM
BR -
I don't know how the channel displayed above is calculated but the graph definitely suggests that small changes of the initial conditions can result in diametrically opposite conclusions. Such as pinning the trend line to the 2004 Jan peak and drawing it through the Jan 2005 peaks suggests a breakout throught the top of the channel. Also why pin the lower channel at the Sep 2004 low? Why not pin it at the Sep 2005 low?Seems that is when the latest uptrend began.
Nice to see the Mescaleros on the right. I do miss Joe Strummer.
Posted by: kevinmr | Oct 6, 2006 8:43:53 PM
per BR:
"Kevin MR,
Those are the channel trendlines via Chart of the Day --
How else might you draw channel lines? I'm all ears on this . . . "
It appears that Kevin does not understand that a channel consists of upper and lower trend lines and, by definition, a trend line has to hit a minimum of 3 data points. The more times the line is touched over time, the more meaning it has. If you just connect two points on a chart, you may be drawing lines, but they are not trend lines.
You can of course monkey around with trend lines to suit your purposes which is why all else equal, a line that begins further back in time is generally held to be more meaningful than one with a more recent starting point. I don't have a problem with the way that the trend lines (and thus the channel) were constructed on this chart altho it would have been interesting if the 200 day MA had been included as well.
Posted by: whipsaw | Oct 6, 2006 9:12:21 PM
