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Comparing This Rally To Past Bull Market Bottoms at Trader’s Narrative

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Last week we took a look at a recent research report from Morgan Stanley on the aftermath of secular bear markets. Although in that article I featured this chart comparing the Nasdaq market from its peak in 2000 to now with the infamous Dow Jones Industrial index top in 1929, it deserves another mention. You can click on the graph to see it in full size:

comparing 2000 top in Nasdaq to 1929 top in Dow

I’m always fascinated by the fractal nature of the stock market. But I’m not convinced this isn’t just a random coincidence. Here’s another chart from Bloomberg comparing the S&P 500 with the Nikkei:

comparison of Nikkei bubble aftermath and US market Sept 2009

Again, an uncanny similarity. Again and again, markets seem to follow the same script. Or rather, the individual participants act with synchronous precision to create and unravel manias.

Another interesting comparison I mentioned a while ago is this year’s spring rally in the S&P 500 with that 6 years ago: Comparing Flag Formations: Then & Now. But where we part company from the past is when we look at the magnitude of this most recent rally.

This surge has offered no real opportunities for those who hesitated at its inception and waited for a pull back. In fact, the rally from the March 2009 lows has been the sharpest we’ve had in 40+ years:

comparing the 2009 spring rally to previuos bull market bottoms

If you consider each rally chronologically, something becomes noticeable: with the exception of the 1982 example, each subsequent bull market rally has been slightly sharper than the previous one. Maybe there is a pattern there. But it is hard to statistically defend since the observable sample is so small.

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