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:

Dow_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

Aaii

This is rarely a winning combination . . .

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Discussions found on the web:
  1. Mike M commented on Oct 6

    More of the Alfred E. Neuman Market.

  2. bob commented on Oct 6

    I think you need the DOW graph to be plotted inflation adjusted. That will make the tunnel horizontal and much more visible.

  3. Smokefoot commented on Oct 6

    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?

  4. RW commented on Oct 6

    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.

  5. duncan Robertson commented on Oct 6


    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

  6. Barry Ritholtz commented on Oct 6

    When looking at charts, you only want to see price action — not inflation adjusted, not Div reinveste — just price action.

  7. Michael C. commented on Oct 6

    >>>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...

  8. Michael C. commented on Oct 6

    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!

  9. Sherman McCoy commented on Oct 6

    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.

  10. kevinmr commented on Oct 6

    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.

  11. PigInZen commented on Oct 6

    Kevinmr,

    Nope, if you use the peak of Jan 2004 then we haven’t reached the upper limit yet.

  12. Slav Inger commented on Oct 6

    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.

  13. Michael C. commented on Oct 6

    >>>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?

  14. Bob A commented on Oct 6

    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?

  15. kevinmr commented on Oct 6

    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.

  16. jmf commented on Oct 6

    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/

  17. Ryan commented on Oct 6

    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.

  18. Barry Ritholtz commented on Oct 6

    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 . . .

  19. jack commented on Oct 6

    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

  20. Incognitus commented on Oct 6

    “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.

  21. phil commented on Oct 6

    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

  22. muckdog commented on Oct 6

    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.

  23. kevinmr commented on Oct 6

    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.

  24. whipsaw commented on Oct 6

    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.

  25. Sherman McCoy commented on Oct 6

    phil- thanks for correcting me on this… i’ll need to be more cautious when forwarding info from my lunch dates!!! ;-)

  26. Ryan commented on Oct 7

    There is No Question the economy is slowing significantly. But could this be a slowdown without a stock market decline? Is this possible due to movement of cash out of real estate and into stock, relatively low stock valuation and profits that are still rising from international growth? I guess that’s what we are all going to find out.

  27. kevinmr commented on Oct 7

    Whipsaw –

    I do understand the concept and math behind drawing channels on a time series of stock prices.
    I also do not have a problem with the chart as constructed but other channels can be reasonably drawn that will lead to a conclusion that is opposite of what was proposed in the original post.
    The chart presented shows we have reached the top of one possible channel.

  28. whipsaw commented on Oct 7

    Kevin-

    Of course you can plot the lines in other ways, but I think that this whole thing got started because you assumed that BR created the chart in a way that you considered misleading. If you had clicked the chart, you would have learned that BR didn’t create it in the first place, it was a bigchart.com chart of the day. Unless you have some reason to think that they were not trying to get the best fit (as opposed to advance some agenda), then I would suggest that it just reflects the most sound technical construction.

  29. Barry Ritholtz commented on Oct 7

    whipsaw is correct.

    It also goes to show how intellectually bankrupt it is to attack the person — rather than the idea — that is under discussion. (See Tim Iacono’s discussion on the GSCI earlier this week)

    The risk is that when making ad hominem arguments, not only is it an inartful form of debate, but by picking the wrong author as your focus, you end up looking rather foolish

  30. kevinmr commented on Oct 7

    Sorry you took my comments in that way. Where does this hostility originate from? I thought it was reasonable to suggest the chart can be interpreted in a different way.
    I did go to the website sited and it does not indicate the calculational method used to arrive at the channel. It is reasonable to assume the trend lines are drawn, if so different starting points may lead to different conclusions.

    What is wrong with that?

  31. Barry Ritholtz commented on Oct 7

    You wrote: “I think the trend lines drawn above attempt to rationalize the authors bearish slant, poorly.”

    That statement was identified as a weak and somewhat inappropriate argument.

    It would be better to find different/better trendlines supporting your argument and link to them.

    I’ll take it a step further: Draw your own trendlines, email them to me, and I’ll post them above . . .

  32. kevinmr commented on Oct 7

    I didn’t mean to imply the “author” quoted above is yourself, I meant the author of the chart. I probably should have been clearer.
    I thought whoever created the chart chose those particular trend lines from a number of other possibilities. Are you suggesting the channel displayed is the only reasonable one applicable to this particular time series?

  33. phil commented on Oct 7

    “phil- thanks for correcting me on this… i’ll need to be more cautious when forwarding info from my lunch dates!!! ;-)”

    no problem, keep posting, i do enjoy your thoughts!

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