Long Term Trend Lines (SPX 1929-2010)

Yesterday’s long term chart from UBS’ Peter Lee started a conversation with a friend who is a (pure) technical trader about long term trend lines.

Some of the more bearish technical traders use a trend line that connects the 1929 low and the 1943 low — projected forward 60 years, it forecasts SPX 400.

That trend derived forecast has several problems: First, its so old, that small errors are greatly magnified. Like a satellite off by a few degree, by the time it reaches Pluto its nowhere near where its supposed to be. Same issue with projecting out decades. Also, the post-1929 lows might be considered aberrational.

Perhaps most importantly,  trend lines are validated by the number of touches they make — the more the better — and so tagging not only 1942 (and near ’49), but ’73, ’82 and 2009 increases the validity of the trend line.

Funny thing is, I found a chart that does that — again, by UBS Peter Lee:


click for ginormous graph


2011 Technical Market Outlook
Peter Lee – Chief Technical Strategist
Wealth Management Research
December 2010

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