Stock Markets: Extended Trading Range?

Prieur du Plessis Investment Postcards September 20, 2010

Sat 18 Sep 2010

Posted by Prieur du Plessis under Investment, Stocks No Comments

I have argued for a while that stock markets will probably be fluctuating in broad trading ranges for a while. This is a viewpoint also shared by Marc Faber and backed up by my study of expected returns.

More evidence comes from Chart of the Day, with a chart illustrating rallies that followed massive bear markets. A "massive" bear market is defined as a decline of greater than 50%. Since the Dow’s inception in 1896, there have been only three bear markets whereby the Dow declined more than 50% (early 1930s, late 1930s until early 1940s, and during the very recent financial crisis). The chart also includes the rally that followed the dot-com bust during which the Nasdaq declined 78%.

"The current Dow rally has followed a path that is fairly similar to that of post-massive bear market rallies. The initial surge of the current rally lasted nearly 300 trading days and has been trading flat/choppy ever since. If the current rally were to continue to follow the post-massive bear market rally pattern, the current choppy phase would continue for another 200+ trading days," said Chart of the Day.

The study's conclusion more or less ties in with how I see the lie of the land.

Source: Chart of the Day, September 17, 2010.

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More on this topic (What's this?) Investing in Stocks: Ignore the Negatives, Embrace Your Contrarian Side and Buy Stocks Now (Investment U, 9/7/10) POST-MASSIVE BULL MARKETS (THE PRAGMATIC CAPITALIST, 9/17/10) Are Your Ready for the Big One? (, 8/19/10) Read more on Dow Jones Industrial Average (DJI), Stock market, Bear market at Wikinvest

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Flash Player 9 or higher is required to view the chartClick here to download Flash Player nowif (typeof(embedWikichart) != "undefined") {embedWikichart("http://charts.wikinvest.com/WikiChartMini.swf","wikichartContainer_E59CACA3-CDF7-0B62-B92D-6E92F2F0E00D","210","200",{"startDate":"10-03-2010","showAnnotations":"true","endDate":"17-03-2010","ticker":"SPY","liveQuote":"true","embedCodeDate":"2010-3-18"},{});}View the full SPY chart at Wikinvest

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Stock Markets: Extended Trading Range?

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