(1) The 33-Year rally from 1933 to 1966 had the same speed than the 33-year rally from 1982 to 2015.
(2) The period 1995 to 2007 is a balloon over that “normal” trend.
(3) The DOW is currently in line with long term trends (against “normal” speed limits).
(4) The red line on this chart is climbing at 14% per annum – it is very likely to retain and is now 2% higher.
The 3 scenarios question:
1) Will DOW correct back within the large range 18,500/8,000? That would respect long term average progression.
2) Will DOW hug its resistance for many more months (Pain)? We could have had enough pain as is.
3) Is the liquidity induced justifying another inflection point with exponential progress like what occurred in 1995? That would be exponential again.
- Locally the progress is capped 2% higher.
- I don’t think the market is about to move up vertically (even in 1995 and 1986, it had corrected for 1 year before to launch this type of attack).
- I acknowledge I am a bit too linear (using Ray Kurzweil wording), I think there is room for mean reversion.
This log chart is to take with caution as the index is changing through time and the price is not adjusted.
I can tell you this:
1) over the long run equities tend to go up and DOW will reach 70,000 in the next 3 decades.
2) there is a window in the next 12months for a sharp correction of 20%. Very likely.
3) there is a window in the next 5Y for a move down of 50%. Less likely.
4) If market corrects 20% and the rally resumes for 2/3years.. then we shall have a sharp correction but it will start from so high that the bottom of it may be not far from where we are.
think of it this way: if 20% down and then 20% up every year for 3 years, sp500 wold reach 3000.. then the next 50% correction would bring to 1500ish.