I haven't taken a good look at the 1937-1942 analog lately, so I thought I would do something a little different this time and back it up – way up – to a larger timeframe.
First, here is the chart from 1928-1943. I have numbered the major turning points. For those not acquainted with my work, let me drive home the point that this has absolutely nothing to do with anything resembling Elliott Waves, which in my experience have proved to have zero predictive value. These are just plain old numbers. Nothing more.
(As usual, if you click on either of these images, you will get a larger version of it.)
My belief is that we are at approximately point #25. There has been a huge amount of noise the past several months in the markets, making the identification of our "location" quite difficult, but based on this interpretation, I think the "grind it out" slow descent has begun, and there won't be any big drop until sometime in the middle half of next year – – – let's call it April, give or take a month.
The notion that the market isn't going to make any big moves in either direction for a while sort of makes sense, given:
+ QE2 is obviously kind of a pile of wet kindle right now; a $700 billion joke that's already been fully taken into account;
+ Earnings clearly aren't falling to pieces; they might not get hit with Reality until Q1 2011 reports come in, which would coincide with a "shock event";
+ What's the best or worst news that could happen in the short term? The market has been buffeted by a lot of news lately which, in normal markets, would be cataclysmic, but with the Permanent Fed Backstop, all moves are muted.
Now any time I mention this analog I hear the same tired old excuses: "It's different this time. We are in a totally different world than the 1930s. Everything has changed." If you seriously believe a historical chart cannot inform your present-day decisions, I don't know what your interest in technical analysis is in the first place. To my way of thinking, historical analogs are an important premise for the entire realm.
The good news for bulls and bears alike, I think, is that a steady market is a chartist's market. I have plenty of beautiful long and short positions that I really like, and I'll be happy to acquire more. This kind of "smooth sailing" really reduces my bias, and I'd prefer to have a mix of bullish and bearish charts that I really like instead of having to tilt hard in one direction or another.
