If you look at a long term chart of the Dow Jones Industrials it is interesting to see how symmetrical the advance since the 1932 depression lows has been.
You could turn the chart upside down around a point in late 1974, and it would look almost exactly the same.
This chart lines out some of these symmetries (click for much larger image);
If this symmetry is to run its full course, then it asks for a major high in late 2016 or early 2017. Feasible?
If the symmetry continues then the price action since the year 2000 peak should resemble the price action of the first 17 years since 1932, but mirrored. In the next chart I have done that exercise (click for larger image):
Lining up the 1949 bottom (becomes a peak in the mirror image) with the early year 2000 high gives a good match. While there are obvious differences, we can see that most tops and bottoms line up well.
Overlaying it directly we can get this (click for larger image);
Here I have matched the 1949 mirror high to the 8000 level for the Dow, which puts the correction low at 6470, which was the actual low in 2009. That sets out an upside target of 31130 by the end of 2016.
By the way, I have always thought that 8000 would have been the natural high for the Dow in 2000, if it hadn’t been for easy Al’s monetary policies.
Long term trend lines that have been in play for decades are also showing a convergence around 32000 by late 2016 (click for larger image):
Zooming in on the potential price targets:
The most optimistic target is just above 50000, not one I consider very realistic, unless we get hyperinflation.
The trend channel that started in 2009 is targeting 30000 by late 2016. This advance happens to be climbing at exactly the same rate as the 1994-2000 bull market. Can this be kept up for three more years?
A few conditions will need to be met for this very bullish scenario to remain in play:
1) The current correction has to be shallow and cannot venture too far below 14000 before recovering.
2) The green overhead resistance line, connecting the 2000 and 2007 highs, will have to be overcome and left behind. That’s not going to be an easy feat. But with all the ongoing QE, who knows?
3) This breakout above 17000 would have to come by summer 2014.
If we get a deeper correction to 12000 or something, or if the market fails to break above the green resistance line, then 19410 becomes a viable lower target to be reached in 2016.
In all these cases, a 2016 top would mean the end of this symmetric pattern, and may be followed by a 1930s style crash and depression. That would take the Dow all the way back down to 4000-5000 by 2020.
Let’s just see what happens.
Danny, for it’s worth, a guy by the name of Martin Armstrong believes the Dow will double by the 3rd quarter of 2015. He expects the increase to be similar to what Japan experienced from 1988 to 1990 when the Nikkei doubled in two years. Link to his blog is http://armstrongeconomics.com/armstrong_economics_blog/.
Yes, I know about him.
I think 2015 will be a bit quick to get to 30000. But we will see of course.
We still have the ongoing situation where cash and bonds are being made completely unattractive by ultra low interest rates. So when somebody sells his stocks, where is he supposed to put the money?
That’s why volume in the markets is low: not many sellers.
Great post.New ideas.And they all said Gallileo was wrong.
Thanks. Glad you like it.
Hi Danny, A fascinating theory…I hope you’re right…but the engineer in me wonders if you’re not looking for an image of Jesus. We’ll see. Thanks for the posts! Gaylord
Hi Gaylord. The engineer in me wonders as well.
Fact is that “self-similarity” and fractals are known phenomena in nature. If it goes up for three more years then the symmetry will be perfect. The main problem is that markets and “perfect” rarely go together. Aka: when it looks too good to be true, then it usually is..
But we will see of course.