It's Logical

Nasdaq-Dow Analog - The Top Has Been Reached

I firmly believe that the U.S. Equities market top last week on Thursday is of a long term nature and that we are about to enter a one to two year bear market in U.S. equities.

I have been closely following the zig-zags of the recent Nasdaq market compared to the Dow during the period from 1924-1937, as you can see in the chart below, and last week it appears that the ultimate top in 1937 lined up with what could be a major top for quite some time. As you can see from the charts, if history repeats, or even rhymes, we will have a rough road ahead.

Here's an updated chart of the analog between the Dow in the 1930s, with the peak of the 1929 high synchronized with the 2000 peak in the Nasdaq Composite Index:

You can also read this trading idea on MarketHistory.com

Dow 1930s versus Nasdaq in the New Millennium

When the market declined over 3% one day back on February 27, I mentioned that I thought that this was not the beginning of the end for the stock market….not just yet.

One of the reasons why I said this is the road map that I have been using to guide me to see the "big picture": an overlay of the DJIA from January 1, 1924 with that of the NASDAQ beginning on August 1, 1994.

As you can see from the chart, these patterns are similar, and the NASDAQ "crash" that occurred in 2000 was very similar to the stock market crash in 1929. Also, as you can see, so have the recoveries after the crashes. This roadmap shows continued strength for some time yet, and as I mentioned back in February, I do not see any significant downturn until this Fall. That is the time to start to be wary, and I would even lighten up or get entirely out of the stock market by the end of August. It used to be that Octobers were bad months for the stock market. However, in recent years, people have been conditioned to buy stocks in this month, and they have been duly rewarded for doing so.

I think that this year will be different.