2008 Nov 14 - Fri

Receding Recession Indicator

The last time the Dow was at current levels looks to be back in May of 2003. But going back a bit more, it was May of 2002 that the Dow dropped below 10,000. It hit a low of 7600 during the beginning of October 2002. December and January were relatively 'happy' months before the Dow retested 7700 in March 2003. It took a steady rise till December 2003 to cross back above the magic 10,000. The year 2004 saw a few minor dips below 10,000, but nothing serious. October 2007 seeems to have been the recent peak at around 14,000. It declined bit by bit until September/October of this year when it bit the dirt.

In the last few weeks, it hit a low of 8451 around Oct 10, another lower low October 27 of about 8175, and retested with a mid-low at 8282 on November 12.

All this to say that we haven't made any recent lower lows. Yet. Leonard Novy says a symmetrical triangle is forming prior to a head and shoulders finalization at a still lower level. We shall see.

And if history offers any pattern for the future, we could stay at this level for six to twelve months. Things could improve over the next bit. Come next year, there are supposed to be more mortgage resets, which may cause another economy/financial hit, more people losing homes, and as a result jobs. After that, hopefully people's eternal optimism will start to kick in, and it is possible we could see a 10K Dow by the end of 2009 or first quarter 2010.

According to Donald Luskin, the bear market will be over when "stocks have rallied at least 20% from any given low point, over at least two calendar months". The pattern in December 2002 almost but not quite made the 20% criteria. It wasn't till after March 2003 did things conform to pattern.

Perhaps 2008/2009 may hold a similar pattern to 2002/2003.