1975 Dow Chart from December 74 low
2009 ES Chart from March 09 low
Sunday, November 1, 2009
1974-1975 Analog
The oil shock in 1973-1974 helped to trigger the bear market of 1974. That bear market ended in December 1974, and a sharp rally in 1975 occurred. The oil price shock in 2008 was a factor (not the main one of course) in triggering the bear market of 2008-2009. This bear market ended in March 2009. Unlike most people that look at stock market history, I think the similarities between 1974-1975 and 2008-2009 are much greater than between the 1930s and 2008-2009. Taking a page out of Paul Tudor Jones in Trader, the video, I have used the Dow daily charts in 1975 as a guide to trading in 2009. The correlation is quite high so far for the last 7 months. In 1975, the market had a furious rally off the December 1974 bottom and topped out in July 1975, which is 7 months. In 2009, we have topped out in October, which is 7 months off the March low. Based on the 1975 analog, we should trade down a bit more to around 960-970 and eventually rally very strongly in early 2010.
Subscribe to:
Post Comments (Atom)
Posts
4 comments:
Hi there
First, let me congratulate you for the very nice calls you have made this week.
What I want to ask you is - do you believe oil price will go higher as market goes lower, as it did in 1974 ?
because these times, when market goes down, oil usually goes down much faster.
and one must not forget the oil embargo back then.
what do you think ?
Thanks for the kind words.
Oil usually isn't this highly correlated to stocks. 2009 is an anomaly for the oil - stocks correlation. That being said, in the short term, oil will likely move with stocks, but the correlation gets less and less as the economy recovers. For this year, to answer your question, no, I don't think oil goes higher as the market goes lower. Oil usually is weakest in December seasonally because of commercials lightening up on inventories for tax reasons.
Look at oil, its at around $77/barrel, only about $4-5 from its highs this year, and S&P is over 60 points from its highs. Despite the dollar strengthening, oil is clearly stronger than equities now.
I do believe oil will really go higher next year as long as SPX is above 1000. But that's at least a couple months away.
Nice comparison. Mkt going up Monday due to Yankees. These smart phones are the greatest.
Thanks for the well written and thoughtful answer.
Post a Comment