If you look at the chart to the left it is clear that in both cases, the 1970’s and the 2000’s we are in a period of persistent downtrend.
I have drawn two trendlines labeled 1 and 2 to define two different degrees of bearishness. What we see in the 1970’s is that the Dow accelerated into a more bearish state by following the number 2 down trendline after the initial number 1 down trendline.
But then the market double bottomed and the market was able to rally in an almost vertical fashion, piercing the number 2 down trendline and rally all the way back up the the down trendline number 1. At that point it just went into a long sideways consolidation and eventually broke out north from that number 1 down trendline.
So now we find ourselves here in the decade of 2000 and again we have 2 different levels of bearishness market by trendlines 1 and 2. Now it appears that on the Dow we have been able to pierce down trendline number 2. But right now we are in a corrective phase and it remains to be seen how deep the correction goes and whether or not it is able to hold ABOVE this down trendline number 2 or if it will break back UNDER it.
I can tell you now that if the Dow Jones Industrial Average breaks back down under trendline number 2 and stays under there with no apparent signs of wanting to maintain price above it, then it will be a VERY bearish sign.
My hypothesis for some time now (the last few months) has been that the Dow Industrials are in a very large trading range type market that will see huge swings and could see the Dow recover way back up to at least a pocket under down trendline number 1.
At least for now I have rejected the hypothesis that we are in a 1929 style bear market that will see us continue to spiral lower to 1000 in the Dow by 2012.
But I can tell you right now that the price action for the rest of this year is going to be very critical in determining exactly what my future take is on this market. I reserve the right to change my opinion at any time. So for now I am sticking with the 1970’s style scenario, but I may change that opinion depending on how the second half of this year shapes up.
Of course any new thoughts I have will be posted right here at BestOnlineTrades.com