DOW Bottom will be 8088
OK, it’s almost a blind guess, but I believe that the DOW’s bottom is going to be around 8,088. Why? 8 is a nice lucky number. A little more seriously, if you “draw a line” from low points going back to 31-Oct-97, you get a suprisinly linear trend with a nice fit. It’s spooky how easy it is to connect the dots. If you extend it out to today, you get a level of 8,088.
There is no formal or “fundamental” logic that would back up my assertion. Instead, it only represents crude observation about the trends that, at least to my eye, emerge from the collective behavior of all market participants. Does that make the assertion “wrong”?
I used to think so. Technical Analysis is called pseudoscientific because it is based on hypotheses that are hard to “prove” and or “test”. Mind you, all of economics is based on hypotheses that, while proveable in a mathematical sense (if you buy the assumptions), are not provable in the same way that assertions in the fields of physics or chemistry are. When systems get highly complex true proof is not possible. People are them forced to rely on controlled observation and studies that draw conclusions based upon the balance of probabilities. That, for example is what happens when people test drugs in the hopes of getting FDA approval. “63% of patients improved” is not absoulte proof that something works. It is proof that it works for a portion of the population.
I got the exact number of 8,088 using the Excel TREND function and punching in the data below. The bold numbers are the predictions.
Date Close
31-Oct-97 7,442
4-Sep-98 7,640
4-Oct-02 7,528
31-Mar-03 7,992
09-Oct-08 8,088
10-Oct-08 8,089
13-Oct-08 8,089
20-Oct-08 8,090
27-Oct-08 8,091
03-Nov-08 8,092
You mean I don’t get to buy in at DOW 5000?
:-)
so… whats the average annual growth rate between 1997 and 2008 if the bottom is now? somewhere around 60/7442 = 0.8% nominal?
I don’t get it. How did you pick the dates, data points? It seems you could make any “bottom” number fit if you choose the right dates.
I think I’ll peg it between 7,500 and 8,000 based on the unrealistic p/e ratios that started in 1996. Draw a line on dow from Reagan effects 1982ish to 1996 and that’s where it lands. The prediction from that line gets us back to 13,000 levels in 2028 or so. Hope I’m wrong! :-)
Why did you pick 1997 - current as the date paramenter for the Trend Line? The trend lines seems to totally ignore anything that was happening between 1998-2002.
All you did was plugged and chugged peaks from 1997 - current and made a best fit linear. Anyone can do that.
What is the basis of your argument, Economically, mathematically, or Logically?
@Chau,
If you pick anything before Oct-31, 1997, and you draw a line through it, you get a bottom that is actually higher than where we are today.
I also do think that something fundamental happened after the 1980s. Central banks finally figured out that they had to control inflation. We also saw the introduction of IT. From JIT to the Internet, there are truly new bits of technology that have changed the nature of economic growth and the market’s ability to react to changes in circumstances.
It’ll be interesting to see where it all goes.
Today could be the day we have the close around 8,088.
- Rod
MS Excel does not predict black swans.
http://en.wikipedia.org/wiki/Black_swan_theory
I am not an expert, but my understanding of technical analysis is that bear markets tend to have 3 legs down, with the second being heavy and quick. It seems we have only seen two down-legs so far.
Can someone repeat the exercise using different starting points or medium and long term moving averages fitted to a trend line? This could show the real low of the last leg.
2009/03 DOW bottom was 7700
March 3rd 2009 - DOW at 6700
Wow - such amazingly wrong predictions!
Here’s one: the dow will bottom when p/e valuations about 8. They are somewhere around 12 now - with the dow at what about 6,600 or so. So, that implies a bottom of 33% lower - about 4,400.
makes 5,000 look good.
What happen to the update about innovation on this blog?
I think the prediction was very good. I sure wish I had invested when you made the prediction.
Small businesses recover after the stock market in most recessions. So I expect them to rebound about any time now.
Just wondering if innovationcreators.com will be starting up again? There’s a ton of good stuff here dating back years.