YaKa

DOW - Rallies and Corrections Statistics over 100 years.

INDEX:DOWI   DOW Industrials
404 10 8
Using the Dow Industrials             index.

Dow could reach 100,000 in 2045 but in the next 5 years the question remains as to a possible sharp/ final correction to complete the last 15y flat trading ( inflation adjusted).

Conclusions:
- Over the last 100 years, I did not find a period of more than 4 years without a correction of 20% or at least a period of flatness of at least 1 year (correct me if I am wrong).
- In 2016, the risk of a period of correction (be it flat in a band of 20%) is relatively high and there is a possibility it goes much deeper (40/60%) [Catalyst: Deflation / Bund             Bubble / War / ...]
- The longest streak of positive years was 9 years in 1991 (2 to 5 years being the norm). We are currently in year 7 if this year is positive.
- 67% of years were positive.

Please tell me in which scenario you believe in on the chart below: (1), (2), (3) or (4)?

Facts (rough measures/done manually):
1) In the long run, Equity Indices tend to go up (Fittest selection in the index – Monetary Base Inflation – Smart Management Input) – In case of doubt, in a non leveraged fashion, better be long. Period.
2) Long term rate of appreciation is 7.5% (ex dividend/non inflation adjusted, call it 7.5% inflation adjusted ex dividend).
3) The longest rally without any major correction lasted 7 years from 1991 to 1998 (no correction larger than 14% and 94 was flat)
4) Including corrections no larger than 20% (generally 2) and no longer than a few quarters, there were 2 major rallies of 11y and 13y (49/62 and 87/00).
5) Including corrections no larger than 20% (many) and sometimes flat for many quarters, there were 2 major rallies of 24y and 18y (42/66 and 82/00). Items (4) and (3) are within this.
6) 15 Sharp rallies have lasted less than 8Y (with 20% corrections within).
2 x 8Y
1 x 6Y
3 x 5Y
2 x 4Y
6 x below 3y
7) There were 24 corrections of 20% or Long enough in time to be relevant (one every 4 years on average).
8) List of 10 biggest corrections (chronologically):
1 – 1923 – 20% - 3m            
2 – 1926 – 20% - 3m            
3 – 1929/32 – 90% - 3y
4 – 1932 – 40% - 6m
4 – 1937/42 - 50% - 5y (WWII)
5 – 1946/49 – 25% - 3y
6 – 1961 – 31% - 6M
7– 1968/79 – 38% - 2y
8 – 1973/75 – 45% - 2y
9 – 1976/82 -30% - 6y (the longest – High inflation – Very punitive but subsequent explosion until 1987… well 2000 actually)
10 – 1987             – 40% - 3M             (the shortest and most remembered because out of the blue for non technical people)
11 – 1990 -25% - 3m            
12 – 1998 – 20% - 3m            
13 – 2000/03 – 40% - 3y
14 – 2007/09 – 54% - 2y
15 – 2010 – 20% - 3m            
16 – 2011 – 20% - 3M            
9) There were 13 flat corrections where the market remained in the same are for 1/2 years.
10) Time wise, There were 3 periods where the market did not make much progress in a very large band for an extend period.
1) 1929-1954 – 25Y
2) 1966 – 1982 – 16Y
3) 2000 – 201X – 15y so far (was it over in 2009 or are we in for a 3rd dive of 40/70% again?)
11) In terms of asymptotic move initiation: 1995 and 1996 were really special years (outliers). Surprising although 1994 was a clear buy signal after 1 year correction (super clean on DAX             ).
12) Over the last 90 years, I did not find a period of more than 4 years without a correction of 20% or a period of flatness of at least 1 year.
13) 67% of years were positive
14) The longest streak of positive years was 9 years in 1991 (2 to 5 years being the norm). We are currently in year 7 if this year is positive.
Thanks again for the detailed chart/analysis Yaka.
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#3 backtesting year 2000 & 2007 highs.
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Break TL support and it would be a different setup than 1995-2000,
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elp elp
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elp elp
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Yes.. I think SP500 is due for a correction and this starts towards the end of the year.
1) flat only
2) sharp and up
3) sharp and follow through
4) slow but steady down.

the scenario up would probably be slow if was to occur.
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First question: 1800 or 2400 first? Then we review
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Awesome historical analysis. Not sure I can contribute anything that you haven't already raised here or in other posts. That said, my personal intuition is that the market takes a hit here going in to earnings, the same as it did in Q3-4 2014 and then resumes the march higher. However, during the next major correction, I think that the SPX revisits the major 1600 breakout and the DOW gets back to 12,000ish
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YaKa PRO Justiceisfalse
I definitely see a period of correction starting soon. Next few years will be interesting.
Locally: it could fall 1/2 weeks but must say I am surprised by the resilience. Let's see how they deal with the NFP results on tomorrows close.
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what an analysis, very comprehensive :)
however, i plotted lines before 1929 and got little different view - interesting is that year 4Q1993/1995 indeed seems to be an inflex point
adx and macd are very stretched, calling for correction, but in this chart there is only resistance line running couple hundreds above 20k... i can imagine we could hit it before that - reachable in 3-4 wild quarters??? check 1987 or 2006
blue DMI+ has to climb above 50 level first, i think, now consolidating
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YaKa PRO look4edge
Thank you for sharing.
Diagonal Lines are very subjective - I have my own very peculiar way to draw them.
In the long run, i like lines that induce a 5/7% compounded progress.
As per the 2 strong quarters, I see very difficult as i see sp500 capped 5% away from here this year.. The only strong upside i see would be in Europe and probably only if eurusd reaches paritty which would not be a strong rally in USD terms.
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