Gaining Perspective from a Monthly Chart View

Dec 23, 2014: 10:01 AM CST

As we slide toward the end of 2014, let’s take a moment to review the broader trends – recessions and recoveries – of the Big Three US Equity Indexes.

It could help put your current trades in a larger perspective, especially for short-term traders.

We’ll start with the S&P 500:

Before we compare charts, let’s discuss the “Broader Narratives” of the past 20 years:

  • Economic Expansion and growth of the 1990’s
  • Tech Bubble Boom (into “Irrational Exuberance”) ending in 2000
  • Tech Bubble Burst and Recession (2000 – 2003)
  • Low-Volatility Economic Recovery (2003 – 2007)
  • Housing Crisis into Financial Crisis into Deep Recession (2006 – 2009)
  • Weak Economy (now Stronger Economy) Plus Large-Scale Stimulus/Intervention (2009 – present)

You can see how the price via trends developed through each of these periods.

For comparison, view the 2009 to present period similar to the non-stop up-action from 1994 to 2000.

The main idea is that it takes time – often years – to shift from one phase in the Narrative to another phase.

Also, “Tops and Bottoms” (large-scale trend reversals) take time – also sometimes years – to develop.

What looks like a spike-low (or high) in hindsight is actually part of a multi-month reversal process.

The current bullish movement and trend is showing few signs of the multi-month reversal process (at least compared with the sideways action from the 1999-2001 reversal; 2002-2003 reversal; and 2007-2008 reversal).

Each period had “sideways chop” or a stall in the trend before the final “absolute” high or low.

The Dow Jones Chart highlights the “sideways chop” reversal concept:

The 2001-2003 recession looks tame or mild on the chart of the Dow Jones when compared to the S&P 500 and the NASDAQ.

Still, we see the strong upward trend from 1994 to 2000 and the low-volatility bullish trend from 2004 to 2007.

The NASDAQ has a stunning chart due to the Tech Bubble Boom… and Burst.  Note something very surprising:

While the NASDAQ (a Tech-Heavy Index) performed normally from 1994 to 1998, the ramp-up from 1999’s spike low near 1,500 took price to irrational and unsustainable highs above 5,000.

The collapse occurred just as quickly as the boom and the index fell quickly back under 1,500 to end the early-decade recession.

Interestingly, the 2008 Financial Crisis and deep recession looks tame in the context of the Boom/Bust Cycle.

Finally, the rally from the 1,500 level in 2009 to the current 4,800 level – just shy of the Bubble Peak – is all the more impressive given the scale of the monthly chart.

Continue studying these charts and using them as reference guides to trends and broader picture concepts.

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Corey Rosenbloom, CMT
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