This post was written by Minyanville contributor Jason Goepfert.
Regarding an observation I saw on the Dow's six straight losses, I show it's happened roughly every 20 years since 1896.
The last occurrence wasn't that long ago, September 2002, though a couple of those months were just barely negative and may actually show a positive return depending on who your data vendor is.
Anyway, what I think is interesting is that the Dow's performance after the others was mixed when looking out one to three months -- sometimes up, sometimes down. After six months, only two of the six were positive and the average risk during those six months was -11%, compared to an average reward of +8%.
Here's the interesting part: waiting to buy the Dow until after six months had passed, and then holding it for a year resulted in five winning trades out of the six. The loser, in 1973, was just an abject failure with a loss of about -28%. No way to sugarcoat that one.
But looking at the others, the average one-year return was +31.4%, with all but one of them greater than +25%. The average maximum risk during the year (on a closing basis) was -4.7%, compared to an average maximum reward of +34.9%.
It kind of fits with what I've been thinking was most likely from here -- a multiweek (perhaps a bit longer) bounce emanating by mid-March, then a decline into the fall that marks a major bear market bottom that lasts for a year or longer.
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Reader Comments (Page 1 of 1)
3-01-2009 @ 4:50PM
Sheldon L said...
This is almost worthless. Unless there is clear specific direction to act upon, the trail can be covered up too easily in retrospect if the ideas don't work out.
The fallibility can be rationalized in advance and just stored away for future reference. The data is little more than a curiosity.