Caught Speeding

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The graph to the right shows four different decades Compounded Annual Growth Rates (CAGR) after record setting decades. The graph starts with the date of the record-setting decade, and then shows the following decade returns with a rolling ten-year CAGR calculated weekly.

The first record-setting decade occured from 1896-1906, when the DOW returned 12.4%. The next decade on the graph shows by 1916 the decade long returns from 1906-1916 were nil.

The next record came in August 1929 when the 1919-1929 CAGR hit 14.0%. By 1939, the decade CAGR was close to double-digit negative returns.

It took thirty years for the 1929 record to be broken. In 1959, the DOW achieved a decade long CAGR of 14.6%. The 1959-1969 decade roared on, but by the end of the following decade returns had dwindled to a hair over 3% CAGR.

The span between records continued to increase as it took nearly forty years for the 1959 record to fall. In May of 1998 the decade CAGR reached new heights at 16.7%. As we are currently in the final year of the following decade, CAGR has dropped below 6% and is tracking very close to the 1959-1969 returns. For that reason, in May of 2007, I used the 1969 CAGR (the final year of the decade) and applied them to 1997-1998 prices to project the May 2007-2008 prices.


The graph to the left shows the projected DOW in blue and how it's actually tracking since May in orange. The projections would call for a record 14500 DOW in the next two weeks, followed by a 20% correction.

It's unlikely that the 1969-decade-long CAGR's will call every turn in the road; but the general direction seems highly reasonable (to me).

You can't speed for too long without breakdowns.

2000 NASDAQ Rhymes with 1929 Dow - 2nd biggest rhyme of all time

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This graph is the Golden-125 indicator for the 1929 Dow and the 2000 NASDAQ. Read the July 24, 2007 post to understand how the G-125 score is derived.

Many of the salient points are annnotated on the graph.

Note the two legs down after the bull market ends on the 1929 G-125 line. In the previous post the 1949 Bull had two similar moves down. The first rebound is the headfake, the second leg down takes the speculators out of the market. This happened in 1937 after the 1932 market quadrupled and inspired renewed confidence in the markets. It happened in 1974 afer the 1969-1970 recession was shrugged off and the 1973 markets raced to new highs on record corporate profits.

And most importantly, it will happen in 2008-2009 as the 2002 recession becomes a distant memory and hope springs eternal that the worst is behind us.

The Biggest Rhyme of All - 1949 Rhymes with 1982

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The Golden-125, graphed to the left, is a momentum indicator using several moving averages. When the shorter moving averages exceed the longer moving averages, points are assigned progressively (the relatively longer moving averages garner greater points). If every shorter-term moving average exceeds the longer moving averages, the index "max-es" out at 125.

The amazing rhyme shows the 1949 Bull compared to the current 1982 Bull.

The two longest periods in Dow history, with a Golden-125 score above 50, occured during these two Bull runs. The 1949 Bull stayed above 50 for 959 weeks while the 1982 Bull set the record by remaining above 50 for 1,007 weeks.

The first Bull bottom (G-125 = 0) occured in Week #1,070 in the 1949 Bull, while the 1982 Bull bottom occured in Week #1,077.

The "Echo Rebound", from the bottom back to the max score of 125, occured in Week #1,209 for the 1949 Bull. The second max for the 1982 Bull occured in Week #1219.

The first break-down to 50 showed the 1982 Bull being more stubborn than the 1949 Bull. As we go through the summer of 2007, the 1982 Bull is again being more stubborn; not breaking down for the second leg down; the second leg down occured in 1974-1975 for the 1949 Bull.

If you don't think two legs down are likely for the 1982 Bull, see more evidence with the rhyme between 1929 Dow and 2000 NASDAQ in the next post.