Dow Rebound From Last March 3rd Best on Record… But Are We Due For An Even Lower Low Soon?

Will The Dow See a Low Lower Than Last March 9th Before Going Considerably Higher?

[An analysis of the] 15 Dow recoveries since the origin of this legendary index in 1896 (excluding the Crash of 1929 which was an outlier), adjusted for inflation/deflation shows, in the chart below, that the current 470 day recovery (at time of writing) since its low in March 2009 is the 3rd best compared to all the other recoveries over the same period. That being said are we in for another one or two lower lows before the recovery takes off for good?] Words: 499

So says Doug Short (www.dshort.com) in paraphrased comments from an article* reformatted and edited […] below by Lorimer Wilson, editor of www.munKNEE.com, for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Short goes on to say:  

[An] inflation adjustment [to the above chart is] useful for this overlay [because]… high inflation, such as during the 1974 recovery, gives an exaggerated sense of price growth [while] deflation, which accompanied several of the earlier market cycles, makes recoveries appear weaker. By adjusting for the inflationary/deflationary cycles, we get a clearer sense of the real value of the index price across time.

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The table below (which includes the Crash of 1929 as depicted by the 1932 data) summarizes the comparative performance of all 16 of the Dow recoveries at seven points in time. Those of 1903, 1914, 1962 and 1970, subsequently failed as did the 1938 and 1974 rallies before being rescued by later recoveries…

Cyclical and Secular Markets

How will our current recovery fare during the coming months and years? I’m reluctant to make any inferences based on the overlay charts other than the obvious. History shows us that some recoveries are the beginnings of secular bull markets. Others turn out to be cyclical bear market rallies.

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The recovery since March 2009 is the second in the first decade of the 21st century, and it started from a lower low. As we can see in the inflation-adjusted chart below, history has witnessed several other examples of multiple recoveries in relatively close succession with lower starting points. Will the current recovery be another example of a number of lower lows before the final recovery takes hold ? Only time will tell.

 

Conclusion

 

*http://dshort.com/articles/Dow/sixteen-real-Dow-recoveries.html