All Is Not Lost Yet

During a time when the wisest and most experienced traders are calling for 5000 for DOW, I feel compelled to present a different view - one that I used to think has very little bearing on my daily trading activities, and hence not worth documenting.

You see, despite my primarily bearish SHORT-TERM view of the market, I've always belonged in the camp that believes that Rome didn't actually fall. I think it simply morphed into a different society.

I'm not going to tell a grandfather story on how and why Rome was perceived to have fallen, there are many free resources out there that detailed that, and one needs to just google "how/why did Rome fall" to find heaps of write up on it.

What I want to do really is to look at some charts - our bread and butter - and then document my own observations about them, draw my own conclusions, and finally, to find some reasons to support my belief that life's going to go on...for now at least.

DOW Monthly

How I look at this is that DOW has retraced over 38.2% since 1900.

No big deal.

It retraced by that much before, in the late 1980s. And few made a fuss over its parabolic rise in the decade following that correction.

Fundamentally, what's unfolded in the states is nothing new. It's happened many times throughout the history of mankind, and I'm sure that during those times, people actually believed that the events unfolding before them were unprecedented. The only unprecedented event that I know about, and will kick a big fuss over, is the one that involves Eve taking a bite of the forbidden fruit. If not for her, I won't be eating today just to live. *&$#*$**$^@

SPX Monthly

Almost a twin to DOW, except for the double-top.

But we've seen double tops and mountains before.

And what happened after that?

S&P 500 shot through the roof.

RUT Monthly

This is an interesting one.

What we see in the area shaded green - take a close look, then look at the whole period spanning 1991 - 2008. Pay attention to the fib levels in the various colors and you'll notice that each of those retracements was 50%. Look at the lines 367.586 and 493.2621 and see what happened there.

If anything, I'd think that RUT is really boring and predictable.

NDX Monthly

Consolation?

The Nasdaq 100 is clearly still on an uptrend, despite the dot com catastrophe.

Well, ok, it was saved by a bigger evil, and it seems we're going to have to pay for it now.

But I doubt we will.

Human beings is such an adaptable species that even something like an ice age will still leave a few standing - enough to breed a whole new pack of wolves that will continue to rule earth.

On a more serious note, we aren't really doing as bad as most thought, and we definitely are not living in the worst of times.

While it makes sense for traders to do TA on charts plotting movement in POINTS, to get a clearer sense of how we are doing in relation to the past, I personally prefer looking at a LOG chart that plots PERCENTAGE change.

If we want to whine about the extent to which things have soured, we have to first look at the magnitude by which they've gotten so rosy in the first place.

Comparing a 1000 points drop now to a 100 points drop in the 80s is no different from comparing apples to oranges.

A log chart compares apple to apple, and an orange to another orange.

So, here goes our log charts for the indices:

DOW Monthly (Log)

Now, the drop we see in the shaded area - THAT is a depression.

Where we are now is simply a period where we are pausing to contemplate on how ridiculously and frivolously extravagant corporations and individuals have become.

But since nothing new really happens under the sun, after this phase of reflection, we'll be all ready to welcome a new era of decadence and profligate consumption.

SPX Monthly (Log)

Same shit.


RUT Monthly (Log)

Uptrend breached.

So?

We simply draw another trendline from the beginning of RUT to the current month.

And we're up again!

Just like before.

BORING.

NDX Monthly (Log)

With this, I don't even have to re-draw lines. NDX is clearly still floating above its uptrend line.

I feel for D's family, and for my friends who are living in the states when they question if they are ever going to see light at the end of the tunnel, if they are going to lose everything - their house, their jobs, their retirement funds, their investments. D works for THAT US bank, and I feel for him too.

But from the bottom of my heart, I don't believe this is doomsday.

When everyone's living like there's no tomorrow, THAT's the end of the world; when all are wondering what the future holds, it's a good start.