Trader’s Narrative

Often it seems our analysis of the markets are like children looking at ants through a magnifying glass. So once in a while it is always useful to take a step back and get a long term perspective. The chart below shows the inflation adjusted Dow Jones Industrial Average since 1925.

There are a lot of lessons to glean:

• While the corrections in 1929 and 1964 were of equal magnitude, the latter took much longer to play out.
• The 1960’s top (previous resistance) acted as support and repelled prices to initiate the spring rally in March 2009.
• The Dow trades at less than twice where it closed at the 1929 top.
• After more than 40 years the Dow is only trading a trifle 30% above its 1964 peak (inflation adjusted).
• Finally, the Dow managed to rise 31% since the spring rally in March 2009 - that is amazingly a pinch more than the gain from the top in the 1960’s.
• The Dow has traded in a very wide and rising trading range - so if you are really really pessimistic, you could say we are headed to 4000 (eventually)

Source: Chart of the Day

To get a full picture, compare this to the (very long term) inflation adjusted chart of the S&P 500 index.