Tuesday, August 17, 2010

Scary Similarity: Charts 1929-1930, and 2008-2010; Big Drop or Crash Ahead?

There are scary similiarities if you look at the charts today (2008-2010) and the Charts (1929-1930) around the time of the Great Depression.

Here is the current chart from 2008 to 2010 of the S&P 500:

Here is the chart from 1929 to 1930 of the Dow Jones Industrial Average (DJIA)

Comparison Points

On each chart, there are labels. A label on one chart, should correspond (similarity) with the same label on the other chart.

  1. A: 2007: S&P 500 peak of around 1560
    A: Sept 1929: Dow Jones Average peak of around 380

  2. B:2008: S&P 500 Drops from 1560 to 1270, -18% drop.
    B:1929: Dow Jones Average Drops from 380 to 325, -14% drop.

  3. C:2008: S&P 500 Intermediate Peak from 1270 to 1440, +13%.
    C:1929: DJIA Intermediate Peak from 325 to 352, +8%.

  4. D:2008: S&P 500 Crashes in short time period.
    D:1929: Dow Jones Average Crashes in short time period.

  5. E:2008: S&P hits intermediate bottom of 741, a drop of 52% from peak of 1560.
    E:1929: Dow Jones Average hits intermediate bottom of 230, a drop of 39% from peak of 380.

  6. F: 2008: S&P 500 Sharp Rebound from 741 to 944, a gain of 27%.
    F: 1929: Dow Jones Average Rebound from 230 to 271, a gain of 18%.

  7. G: 2009: S&P 500 hits Bottom from 1560 to 666, a loss of 57.3%
    G: 1929: Dow Jones Average hits bottom from 380 to 198, a loss of 48%

  8. H: 2009: S&P 500 Rebounds from bottom.
    H: 1929: Dow Jones Industrial Average Rebounds from Bottom.

  9. I: 2009: S&P 500 Pulls back from Rebound.
    I: 1929: DJIA Pulls back from Rebound

  10. J: 2010: S&P 500 Hits "Left Shoulder"
    J: 1930: DJIA Hits "Left Shoulder"

  11. K: 2010: S&P 500 Hits "Head"
    K: 1930: DJIA Hits "Head"

  12. L: 2010: S&P 500 Hits "Right Shoulder"
    L: 1930: DJIA Hits "Right Shoulder"

  13. M: 2010: S&P 500 Hits "Rare Double Right Shoulder"
    M: 1930: DJIA Hits "Rare Double Right Shoulder"

Rare Double Right Shoulder 2010, and in 1930 Before More Drops

Another similarity involves a rare technical pattern, the Head and Shoulders Top with a Double Right Shoulder.

Two other writers including one from China Daily, and the other from CNBC have written about this.

2010: Double Right Shoulder in Head and Shoulder Pattern

1930: Double Right Shoulder in Head and Shoulder Pattern

Big and Long Drop Ahead?

If the Pattern holds, are we in for a Big and Long Drop Ahead?

In 1930, after the rare Double Right Shoulder in a Head and Shoulders Technical Pattern, the Dow Jones Industrial Average Continues to fall from 275 in 1930 to around 41, July 1932, a drop of 85%.

Of course, just because the charts are similar in both eras does not necessarily mean we will repeat history.

But it does make us think.

Today's S&P 500 Chart

Wednesday, June 30, 2010

U.S. S&P 500 Stock Market to Stagnate for Five Years in Secular Bear Market

The U.S. Stock Market, as represented by the S&P 500 Index, could stagnate for a long time period (such as five years).

Long Term S&P 500 Price Channel Since 1950

Since 1950, the S&P 500 Stock Market has been in a consistent price channel, until the year 1995, when the S&P 500 starts the runup at an unsustainable rate, until the peak in 2000. During the time period starting in 1995, the S&P 500 has gone above the long term Price Channel.

We are just starting to see the S&P 500 get back to the top of the normal long term price channel.

In the Reversion to the Mean Theory, this means that the S&P 500 will have to trade sideways for some time to remain consistently in the channel.

Based on the lines above, the S&P 500 should be trading around the level of 500 to 1200.

Five years from now, the S&P 500 could be trading from the 600 to 1500 level, to remain within the long term price channel.

We are in middle of 17 Year Secular Bear Market

Over the long term, the U.S. Stock Market Appears to be in Bull Markets or Bear Markets (Secular Bull Market and Secular Bear Market) for an average of 16 to 17 years.

One grouping consists of:
  1. 1906-1921: Secular BEAR Market
  2. 1922-1928: Secular BULL Market
  3. 1929-1949: Secular BEAR Market
  4. 1950-1965: Secular BULL Market
  5. 1966-1982: Secular BEAR Market
  6. 1983-1999: Secular BULL Market
  7. 2000-????: Secular BEAR Market

This means that if the current Secular Bear Market started in 2000, and if the average Secular Market consists of 16 to 17 year time periods, then a new Secular Bull may start around the year 2016 or 2017, consistent with the Price Channel Behavior above.

More Details on Secular Bull and Bear Markets including Charts

Today's S&P 500 Chart

Monday, June 28, 2010

Head and Shoulders Top? S&P 500 to Consolidate and find Lower Trading Range

S&P 500 Market Top?

The U.S Stock Market as represented by the S&P 500 has made a good run, from S&P 500 level of 666 to 1219.80 for a strong rally.

However, based on the Chart Annotation above, the S&P 500 may have hit a Head and Shoulders Top, a Technical Pattern (analyzing patterns based on stock chart patterns) that suggests that a Top has been made and a downtrend could ensue.

Consolidation Pattern then Breakdown or Breakout?

Longer Term, the S&P 500 market may re-test the Previous low of 666, or a more likely situation, the S&P 500 market will start to consolidate into a sideways Symmetrical Triangle Pattern as shown in the chart above.

In the Symmetrical Triangle Pattern, the Stock or Market trades in the triangle, until it reaches closer to the end of the triangle, and then the market may break upwards, or downwards.

The Market does look like it may be going lower and find a lower trading range for now.

S&P 500 Stock Chart Today

Sunday, January 31, 2010

24 Million Chinese Bachelors: Violence or Opportunity for Chinese Online Gaming Companies?

There is a big demographic shift in China: There will be a surplus of 24 million Chinese Men who will not be able to find a wife in China because of the large imbalance of bachelors to bachelorettes.

Times Online (in the UK) has an article on this.

What are the implications of this big Chinese demographic change? Violence? Revolution? War?

Or could this be an opportunity for Chinese online gaming companies? The online gamers are predominantly male and spending time on gaming could be a pastime and serious hobby for those who are unable to find wives.

There are Chinese Online Gaming companies such as:
  1. Shanda Interactive (SNDA)
  2. The9 Limited (NCTY)
  3. Perfect World (PWRD)
  4. Giant Interactive (GA)