Can history predict the next market move?

Jim_SamsonIt’s getting close to that time of year when people want stock market predictions for the year ahead, and many analysts oblige.

The trouble is that’s hard to do when one looks to the market itself to tell you what’s going on, but there is a way we can make some intelligent guesses…

As George Orwell explained, he who controls the past controls the future. What I take from that is that history can sometimes be a useful guide as to what happens next. There’s nothing mystical about the fact that cycles in asset markets continually repeat; it’s simply because human nature, specifically fear and greed cycles, never change.

Let’s take a look at the current situation with the three year chart of the benchmark S+P 500 (curvy blue line is the long term price average):

image002

Despite that blip back in October that I explained would not be the end of the bull market, this is one healthy chart and many pros bet against it and have the brutal losses to show for it. As investors we LIVE for charts like this- they only come along once in a while, so when they show up you need to make the most of them.

We had a similar chart back in the mid nineties:

image004

Maybe we could look at what happened in 1998 and beyond as a clue about what COULD happen next for us:

image006

As you can see, the market kept going up, but the corrections became more pronounced, the price sagged closer to the long term average price and continually violated it. Another 30% of gain was squeezed out though, but it became a lot tougher for the ‘buy and hold’ crowd (a philosophy we do NOT subscribe to). And we all know what happened in 2000 and 2001: a protracted bear market not dissimilar to the 2008 bear.

History shows us that the bull and bear will continually change places, the trick is to figure out WHEN, and that’s what we’re here to do for you.

The author has an interest in the securities discussed in this article. Source of charts: stockcharts.com

Note from editor: check your email to see if you received a limited time invitation to Stock Code Breaker.

Bookmark and Share facebook twitter twitter

Leave a Comment

*