Analog charts – DJIA

BarroMetrics Views:  Analog charts – DJIA

I first saw this chart (Figure 1) late in 2013. It called for a market decline in the first part of 2014.

Now, I’ll be the first to admit that I find analog charts interesting, but they are not part of my methodology: I just have not been able to use them to make money. But my friend, let’s call him Chris, does use them effectively. The other day we were having a chat, and I brought up Tom McCellan’s chart.

Chris said that he thought it still had merit. He felt that there were two things we could for a ‘better fit’:

  1. Begin the analog from the 250-day swing low (green line Figure 2) and
  2. Take into account the fact that the markets of the 21s century had compressed the time axis.

If we did this, he felt that the time window for a possible top was Nov 2013 to April 2014. (Figure 2). The green arrows show where Chris thinks the DJIA is at the moment relative to the 1929 chart.If Chris is correct, then we’ll see  a blow-off wave before we saw any meaningful decline.

For my part,  before any decline, the belief (that the FED can keep the stock market up through QE) needs to be shattered. Until we see an event that does this, I remain ‘long or out’. Regular readers of this blog will know that I view one possible catalyst is FACTA – that came into effect on July 1. [There is some suggestion the fines will  not begin until August 1 (see irs-eases-rules-for-taxpayers-to-disclose-offshore-cash.html)]. It will take time for FACTA consequences to impact the US economy and the markets. So, the Nov 2013 to April dates 2014 look just about right for a top and decline.

djia-1929-and-2014-2.png

FIGURE 1 McClellan Analog Chart

djia-1929-and-2014.png

FIGURE 2  Barros Analog Chart

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