Tuesday, April 14, 2009
New fractal consideration for general markets
is the Panic of 1907. Fractals are helpful to me to picture what type of market rhyme might be coming, as there is very little new under the sun when it comes to markets, which are dominated by the human emotions of fear and greed. We haven't evolved enough over the past 500 years to make any historical chart patterns that can be found irrelevant.
Below is a chart from thechartstore.com of the Dow Jones Industrial Average from 1905 thru 1909 that shows the bear market action from early 1906 to the end of 1907:
And here is a 3.5 year daily chart of the S&P 500 up thru today's close:
Now, there are some interesting similarities in the pattern in these charts but there are also some differences. Perhaps understanding that the deflationary pull of current economic forces is more akin to the 1929-1932 period than the briefer 1907 period would help explain the greater intensity of the current pattern (i.e. greater percentage losses). If this fractal grossly repeats, however, the bear market plunge coming after this spring rally peters out will be one for the record books as the pattern has each of the 3 legs of the bear market increasing in severity (i.e. percentage loss increases for each leg). This would make for a final death-defying plunge to end the bear market that terminates well under the S&P 400 level.
Food for thought and please don't think it can't happen.